Banks told to review credit card insurance
LEADING FINANCIAL institutions have been ordered by the Central Bank to carry out “comprehensive reviews” of their payment protection insurance (PPI) sales over the last five years amid growing concerns that tens of thousands of consumers were mis-sold such products for almost a decade.
All told, seven financial institutions will carry out reviews as part of the Central Bank’s investigation into PPI sales in the Republic. A Central Bank source said this meant “all the leading Irish financial institutions were implicated” but declined to name them.
PPI schemes promise to clear outstanding debts on credit cards or other loans should a borrower fall sick or lose their job. Approximately 340,000 were sold here during the period from August 2007 to November 2011, with more than 80 per cent being sold through banks and credit institutions including credit card companies, which are now the focus of the Central Bank investigation.
The Central Bank’s director of consumer protection, Bernard Sheridan, said that the reviews will have to be overseen by an independent third party.
“In advance, we are requiring these firms to submit detailed plans for how they will conduct their review, including contacting affected consumers and making refunds where necessary. We will carefully assess their plans and put in place monitoring arrangements to ensure that all firms take a fair and consistent approach to their review,” he said.
Mr Sheridan said the Central Bank was also considering possible enforcement actions in connection with a number of cases, “due to our concerns regarding the level of compliance” with the requirements of the PPI sales code which dates back to 2006.
The Central Bank is primarily concerned some firms have not been gathering sufficient information to enable them to determine whether PPI products were suitable for consumers, and it has highlighted a failure to bring key information on policies explicitly to the attention of individual consumers.
It has also found evidence of poor record-keeping and incomplete files.
PPI policies have been dogged with controversy in the UK after widespread mis-selling was uncovered, leading to billions of pounds in refunds.
Affected customers were mis-sold expensive and frequently useless insurance policies, which were hugely profitable for the banks. They were sold to the self-employed although they would never be able to claim against becoming unemployed.
Banks there also sold policies to people who subsequently fell ill as a result of a pre-existing condition, which invalidated their insurance. In some cases, customers were denied loans or mortgages unless they took out payment protection insurance.
Last month, Bank of Ireland issued more than €1 million to customers who had been mis-sold such policies while, weeks earlier, AIB was forced to contact hundreds of customers after uncovering similar mis-selling.