PPI mis-selling

[anglolawyer]

It is reported that Lloyds Bank is increasing its provision for payment of compensation for mis-selling payment protection insurance by £1.8 billion to nearly £10 billion:

But BBC business editor Robert Peston argues that despite these provisions being "an extraordinary badge of shame" for the banks, the payouts have actually helped stimulate the UK economy.

"These PPI payments have played a very big role in encouraging economic recovery," he told BBC Radio 4's Today programme.

I have two questions about this, one moral and one economic:

1 how many people have been or will be sent to jail for ripping off the customers of this one bank to the tune of £10 billion? and

2 what was the money doing before it stimulated the UK economy (assuming it's true that it has had this effect)?

Surely, the money was somewhere else before it was paid back to the defrauded customers? If I cheat you out of £100 you don't have the money anymore but I do. You can't spend it but I can. When I am found out and pay the money back, now I don't have £100 but you do. So you spend it and I don't. How does any of this affect the economy?

 

[Information Analyst]

It is reported that Lloyds Bank is increasing its provision for payment of compensation for mis-selling payment protection insurance by £1.8 billion to nearly £10 billion:


I have two questions about this, one moral and one economic:

1 how many people have been or will be sent to jail for ripping off the customers of this one bank to the tune of £10 billion? and

I think we all know that that's a big fat zero, even though it's clear that morally - if not actually - PPI was a massive fraud.

2 what was the money doing before it stimulated the UK economy (assuming it's true that it has had this effect)?

Surely, the money was somewhere else before it was paid back to the defrauded customers? If I cheat you out of £100 you don't have the money anymore but I do. You can't spend it but I can. When I am found out and pay the money back, now I don't have £100 but you do. So you spend it and I don't. How does any of this affect the economy?

Presumably it was money that would otherwise have been invested or gone to bank shareholders as dividends. It would seem to suggest that money in the hands of and being spent by ordinary people benefits the economy more than it being squirreled away (in one form or another).

 

[anglolawyer]

I think we all know that that's a big fat zero, even though it's clear that morally - if not actually - PPI was a massive fraud.



Presumably it was money that would otherwise have been invested or gone to bank shareholders as dividends. It would seem to suggest that money in the hands of and being spent by ordinary people benefits the economy more than it being squirreled away (in one form or another).

I have no reason to doubt you are right but I still don't really get it. If I cheat you out of £100 that you would have spent if you had not been cheated out of it and I, rather than spending it myself, put in my bank account, doesn't my bank do something with it? Doesn't it lend a multiple of the deposited sum to a whole bunch of people who in turn go out and spend it?

 

[The Don]

I have no reason to doubt you are right but I still don't really get it. If I cheat you out of £100 that you would have spent if you had not been cheated out of it and I, rather than spending it myself, put in my bank account, doesn't my bank do something with it? Doesn't it lend a multiple of the deposited sum to a whole bunch of people who in turn go out and spend it?

Yes/No/Maybe, it depends on what the bank is attempting to do at any point in time. At the moment banks are trying to shore up their balance sheets which means that they are lending less and keeping more capital.

If the banks are doing something useful with the money then the effects will likely take months or years to become apparent as the investments made pay off. A cash injection into the hands of the consumer is more likely to result in immediate economic activity and as the proceeds of this are fed back into the banking system there is still an opportunity for longer term investment.

Another thing to consider is the effect of sentiment. We've been through a tough recession which means that there isn't much optimism out there. Individuals and companies aren't as willing as they might to make investments even though objectively they may be a good idea. A burst of economic activity may be the catalyst for a change in sentiment which may then drive longer term investment decisions.

 

[anglolawyer]

Yes/No/Maybe, it depends on what the bank is attempting to do at any point in time. At the moment banks are trying to shore up their balance sheets which means that they are lending less and keeping more capital.

If the banks are doing something useful with the money then the effects will likely take months or years to become apparent as the investments made pay off. A cash injection into the hands of the consumer is more likely to result in immediate economic activity and as the proceeds of this are fed back into the banking system there is still an opportunity for longer term investment.

Another thing to consider is the effect of sentiment. We've been through a tough recession which means that there isn't much optimism out there. Individuals and companies aren't as willing as they might to make investments even though objectively they may be a good idea. A burst of economic activity may be the catalyst for a change in sentiment which may then drive longer term investment decisions.

Thanks for attempting to elucidate. Again, I don't doubt what you say for a second. I still don't quite get it though. Say the bank has two customers to pay money to: one is a cheated PPI customer and the other is a manufacturing company that is going to start developing a new widget. In the first case we assume the PPI customer will splurge the money on consumer spending with a resulting boost to the economy. In the second, the money will still be spent but on, say, a factory or some supplies. Won't the people building factories and/or selling supplies now go off and spend the money they got?

Is this something to do with the consumption/savings ratio? Does buying a factory count as capital spending which does not benefit the economy while splurging your PPI compensation on a new coat (or whatever) does?

 

[The Don]

Thanks for attempting to elucidate. Again, I don't doubt what you say for a second. I still don't quite get it though. Say the bank has two customers to pay money to: one is a cheated PPI customer and the other is a manufacturing company that is going to start developing a new widget. In the first case we assume the PPI customer will splurge the money on consumer spending with a resulting boost to the economy. In the second, the money will still be spent but on, say, a factory or some supplies. Won't the people building factories and/or selling supplies now go off and spend the money they got?

Is this something to do with the consumption/savings ratio? Does buying a factory count as capital spending which does not benefit the economy while splurging your PPI compensation on a new coat (or whatever) does?

I'm not an expert at all, I don't even play one on the internet so everything I type should be viewed in that way

My guess is that the PPI money refunded to consumers is largely spent immediately in the UK economy (as this Robert Peston opinion piece suggests: http://www.bbc.co.uk/news/business-25635819).

If the money were retained by the banks it may eventually be loaned out to business to invest. This is better for the long-term health of the economy because it represents a long-term capital stimulus but business is currently unwilling to invest because there is already excess capacity in the economy and banks are unwilling to lend because they are shoring up their balance sheets. As it says in the Peston article:

Which is not to say that the PPI cash imposes no costs anywhere in the economy. To the extent that the payments have depleted banks' capital resources, it may have been a further suppressant of their appetites to lend.

But, as we know, this negative impact would have been marginal, because banks' desire to lend was already depleted.

The PPI money generates immediate demand and it may also help to sway business opinion regarding investment.

 

[anglolawyer]

I'm not an expert at all, I don't even play one on the internet so everything I type should be viewed in that way

My guess is that the PPI money refunded to consumers is largely spent immediately in the UK economy (as this Robert Peston opinion piece suggests: http://www.bbc.co.uk/news/business-25635819).

If the money were retained by the banks it may eventually be loaned out to business to invest. This is better for the long-term health of the economy because it represents a long-term capital stimulus but business is currently unwilling to invest because there is already excess capacity in the economy and banks are unwilling to lend because they are shoring up their balance sheets. As it says in the Peston article:



The PPI money generates immediate demand and it may also help to sway business opinion regarding investment.

OK thanks. That is probably as much as my brain can absorb. Possibly more. It is richly ironic that the UK has sunk so low that it needs this kind of thing as a stimulus. Do you remember that competition a few years ago (in the Brown era) to sum up life in Britain in five words and some wag came up with this in a letter to the Times:

Dipso, Fatso, Asbo, Bingo, Tesco

Add Klepto and you have the banks' contribution.

 

[Jaggy Bunnet]

While there was some mis-selling, the reality is that in a very large percentage of cases people did or should have known exactly what they were buying, but the standard of proof being set by the regulator effectively requires a refund to people who were not missold.

So you get the ambulance chasing lawyers taking a cut for doing nothing. Were they to be held to anywhere near the same standards as the banks, they would have to refund the customers they have missold their "services" to.

 

[brodski]

While there was some mis-selling, the reality is that in a very large percentage of cases people did or should have known exactly what they were buying, but the standard of proof being set by the regulator effectively requires a refund to people who were not missold.

So you get the ambulance chasing lawyers taking a cut for doing nothing. Were they to be held to anywhere near the same standards as the banks, they would have to refund the customers they have missold their "services" to.

at least one UK ambulance chaser chaser law firm has sprung up, not WRT PPI but WRT personal injury, offering to sue other claims firms who may have got you less compensation than you may otehrwiser have got. It's turtles lawers all the way down from here.

 

[anglolawyer]

While there was some mis-selling, the reality is that in a very large percentage of cases people did or should have known exactly what they were buying, but the standard of proof being set by the regulator effectively requires a refund to people who were not missold.

So you get the ambulance chasing lawyers taking a cut for doing nothing. Were they to be held to anywhere near the same standards as the banks, they would have to refund the customers they have missold their "services" to.

How large a percentage? The lawyers get involved because it seems a lot of people can't be bothered to track down and fill out a claim form. They don't do 'nothing' and it is not compulsory to hire them.

 

[Jaggy Bunnet]

How large a percentage? The lawyers get involved because it seems a lot of people can't be bothered to track down and fill out a claim form. They don't do 'nothing' and it is not compulsory to hire them.

Impossible to tell.

Just like PPI did not provide "nothing", it provided insurance to those who met the conditions, which were available to those signing up to it so they could take an informed decision as to whether they would benefit or not, and was rarely compulsory.

As I said, if the same standard was applied the lawyers would be misselling.

 

[anglolawyer]

Impossible to tell.

Just like PPI did not provide "nothing", it provided insurance to those who met the conditions, which were available to those signing up to it so they could take an informed decision as to whether they would benefit or not, and was rarely compulsory.

As I said, if the same standard was applied the lawyers would be misselling.

'Very large percentage' you said but it's impossible to tell how large? Whatever. Hey, I don't care about lawyers. Lots of them are leeches or just crap. But the thread is about PPI mis-selling, not lawyers -v- bankers and no business sets aside 10 billion pounds without having done something pretty seriously wrong.

 

[Jaggy Bunnet]

'Very large percentage' you said but it's impossible to tell how large? Whatever. Hey, I don't care about lawyers. Lots of them are leeches or just crap. But the thread is about PPI mis-selling, not lawyers -v- bankers and no business sets aside 10 billion pounds without having done something pretty seriously wrong.

Only anecdotes I'm afraid.

However based on the number of claims companies who have told me that it doesn't matter that I have never had PPI, I should make a claim anyway and assorted other lies, I suspect a large percentage.

Things were done wrong, but when the regulator retrospectively sets the bar at "you thought buying PPI was a condition, or would increase your chances, of obtaining a loan or other type of credit;" as evidence of misselling then there is no genuine ability to challenge a claim. If the claim follows the wording that the regulator has said will be the test used the banks will simply pay out.

As an example, an equivalent test for legal services might be "did you think using a legal firm to claim would increase the chance of obtaining a payment"?

 

[anglolawyer]

Only anecdotes I'm afraid.

However based on the number of claims companies who have told me that it doesn't matter that I have never had PPI, I should make a claim anyway and assorted other lies, I suspect a large percentage.

Things were done wrong, but when the regulator retrospectively sets the bar at "you thought buying PPI was a condition, or would increase your chances, of obtaining a loan or other type of credit;" as evidence of misselling then there is no genuine ability to challenge a claim. If the claim follows the wording that the regulator has said will be the test used the banks will simply pay out.

As an example, an equivalent test for legal services might be "did you think using a legal firm to claim would increase the chance of obtaining a payment"?

My anecdotes include cases (none of which I have handled) in which PPI was sold to people who, by reason of their circumstances which were known to the bank, could not possibly make a claim - ever. One of my questions in the OP was about punishment. The way I see it, the PPI scandal was organised crime on a massive scale, even if, say, only a 10th of it was as bad as my example (I really have no idea about the breakdown). Why is nobody going to jail? Is anybody being stripped of their knighthoods? One law for the white collar and another for the blue collar types? A tiny amount by comparison has been chiseled by benefit cheats but I seem to hear a heck of a lot more about them than the scammers who exploited positions of trust to con the unwitting.

Your lawyer thing may or may not be apt. I looked at acting in a PPI case, found it only involved filling in a form and told the client to do it himself or go to someone who was mass-producing claims. That client, an intelligent, mature adult, chose the latter option, choosing someone I recommended. I can't really see anything wrong with that or remotely comparable to the banks' mis-selling.

Just thought I would see your anecdote and raise with one of my own

 

[Information Analyst]

While there was some mis-selling, the reality is that in a very large percentage of cases people did or should have known exactly what they were buying, but the standard of proof being set by the regulator effectively requires a refund to people who were not missold.

So you get the ambulance chasing lawyers taking a cut for doing nothing. Were they to be held to anywhere near the same standards as the banks, they would have to refund the customers they have missold their "services" to.

I tend to agree to a certain extent. I had PPI on a credit card that I cancelled after six months (the PPI, not the credit card), and also on a couple of loans that were paid off quite some time ago. Particularly in the case of the loans the terms looked advantageous and would have been useful if I'd needed to invoke them. I'm not interested in retrospectively chasing a bank for a few hundred quid, not least because I still use them.

 

[Jaggy Bunnet]

My anecdotes include cases (none of which I have handled) in which PPI was sold to people who, by reason of their circumstances which were known to the bank, could not possibly make a claim - ever. One of my questions in the OP was about punishment. The way I see it, the PPI scandal was organised crime on a massive scale, even if, say, only a 10th of it was as bad as my example (I really have no idea about the breakdown). Why is nobody going to jail? Is anybody being stripped of their knighthoods? One law for the white collar and another for the blue collar types? A tiny amount by comparison has been chiseled by benefit cheats but I seem to hear a heck of a lot more about them than the scammers who exploited positions of trust to con the unwitting.

Your lawyer thing may or may not be apt. I looked at acting in a PPI case, found it only involved filling in a form and told the client to do it himself or go to someone who was mass-producing claims. That client, an intelligent, mature adult, chose the latter option, choosing someone I recommended. I can't really see anything wrong with that or remotely comparable to the banks' mis-selling.

Just thought I would see your anecdote and raise with one of my own

I assume the conditions were also known to the person buying the insurance? Do they have no responsibility for their own actions, including those who were intelligent, mature adults?

Where there was actual misconduct (eg lying about what it covered or claiming it was compulsory) then there should be prosecutions, but proving it is likely to be very hard and would be at a lot lower level of the organisations than you want

 

[anglolawyer]

I assume the conditions were also known to the person buying the insurance? Do they have no responsibility for their own actions, including those who were intelligent, mature adults?

Where there was actual misconduct (eg lying about what it covered or claiming it was compulsory) then there should be prosecutions, but proving it is likely to be very hard and would be at a lot lower level of the organisations than you want

You have me sized up. I know how these things work. Sure, I would go after the little guys but also the big ones too. The ones who thought up this and other schemes. The banks have become thieves and they get away with it because of our toothless and incompetent regulators, the old boy network and the revolving doors.