The PFCA were delighted to shine our ‘Spotlight’ on the store card PPI issue for the BBC Radio 4 ‘You and Yours’ programme on 17 June 2016 as this product was often mis-sold and worse mis-understood; many customers don’t even know they have it.
Financial Ombudsman Service [FOS] statistics give a mis-leading picture
On the broadcast, Peter White (‘You and Yours’ presenter) asked the PFCA independent chairman (Nick Baxter) why this was such a significant problem when FOS responded to the BBC stating that they had only looked at around 7,000 cases compared to over 188,000 other PPI complaints, last year alone.
The problem with the simple FOS comparison is four-fold:
- People just don’t know they have store card PPI. Let’s think about how store card PPI was sold. A customer walks to the till with their purchase. Store assistant says, ‘If you take out a store card you can get a discount on all today’s purchases’ a very tempting offer for many. Why wouldn’t anyone take one out?
- But the information and application form were often on a basic A4 landscape tri-fold document. The application part represented about a third of the form and only asked basic questions. There was a mixture of positive, opt-in and negative opt-out questions that could confused the customer if they read it. The sales staff were often of no help as they were part-timers (often school children Saturday employees) and they were incentivised heavily on the number of cards sold so the message from them was ‘oh just tick that box and not that box’ etc.
- There was no prequalification to see if the store card was appropriate to the customer’s needs. As the consumer interviewed on the programme said, he was a member of the UK armed forces and had adequate sickness pay he did not need PPI, but he got it!
- Product providers fail to give consumers FOS rights. Peter White suggested that consumers did not need Claims Management Companies [CMCs] as FOS had told him that consumers could take their complaint directly to FOS without the need for CMC assistance. Clearly, the message presented to regulators by the PFCA is not getting through. The bottom line is card issuers are rejecting claims and taking away consumers FOS rights. Confusing, yes, but this is a typical response to a consumer from a card issuer where the store card was taken out before January 2005 (as most were) telling the customer they were “not able to escalate their PPI mis-selling complaint to the Financial Ombudsman Service, as this sale was made prior to 14 January 2005 and [the card issuer] were not a party to this arbitration service before that date.” What would most customers do in when receiving such a response? Give up frankly.
The FCA have been fully briefed
It is only skilled and robust CMCs who have invested heavily in research that have identified that there is a route to claim and who to for each store card provider. Incidentally, over 6 months ago the PFCA gave a full briefing pack on this problem to the Financial Conduct Authority [FCA] with a suggested minor rule change that would have solved this problem, but no rule change has been announced. Sadly, consumers would get lost in this maze without the help of professional well-regulated CMCs.
How big is the mis-sold PPI store card problem?
Statistics are difficult to produce in this area. However, a Competition Commission report in March 2006 shows that there were 17.5 Million active store cards at the end of 2002 – so if we say the UK Adult population was 50 Million at the time and working on one account per adult the problem touches over a third of the UK adult population! This was all before the critical date of 14 January 2005 so it is likely, if things don’t change, that direct claims by consumers will be rejected as above. Although borrowing on store cards was usually less than normal credit cards the APR on store cards was often ten percentage points higher, or more. Additionally, many of these cases go back to the early 1980’s so added account and statutory interest amounts to a huge percentage of the claim (I have been shown many store card cases where the account and statutory interest accounts for 80% or 90% of the redress).
So how much more is to be paid out?
Recently issued FCA figures show that £24bn of PPI redress has now been paid. PFCA analysis shows that on average half of a redress pay-out is account and statutory interest, so only around £12bn of premium redress has been repaid. The FOS website estimates “£50 billion worth of PPI policies sold over the last ten to fifteen years”. Clearly, not all PPI was mis-sold, but if 80% of it was, around £40bn of premiums need to be refunded (not including account and statutory interest). So it appears that only a third of the PPI premiums that are likely to need to be repaid have actually been repaid. No wonder that product providers are lobbying the FCA to place a deadline on PPI claims. Based, on these facts anyone who places ‘treating customers fairly’ at the heart of their thinking should reject such an approach.
Hear the full broadcast here, starts at 3mins