Which? reveals the true cost of PPI to consumers

Which? chief executive, Peter Vicary-Smith today gave evidence to the Parliamentary Commission on Banking Standards on mis-selling, condemning Payment Protection Insurance (PPI) as a “poor product that was sold badly”.

Peter Vicary-Smith said at the session:  “If the banks are serious about wanting to get this problem behind them, as they should be, they have got to engage in the process of sorting out the backlog of compensation claims.”

This comes as new Which? analysis reveals that consumers spent around £50bn on PPI over the past 16 years*.

During the session Which?’s chief executive highlighted many examples of inappropriate sales and incentive schemes and a lack of accountability, for example:

  • Consumers mis-led at the point of sale: Between January 2005 and December 2007, Egg sold PPI policies alongside its credit card to 106,000 customers, earning £16.7 million in premiums. The Financial Services Authority found that 40% of Egg’s telephone sales of PPI breached the regulations.
  •  Banks selling poor products to consumers: Major high-street banks sold PPI policies where the cover only lasted for 5 years, but the loan lasted for 25 years and the consumer would be paying for the PPI over the entire period of the loan.
  • Inappropriate staff incentive schemes and sales targets, including  Lloyds TSB received 87% commission for selling its customers one form of PPI – this meant that if the bank sold a policy with a premium of £10,000, they received £8,700 in commission. This is the highest level of commission Which? has ever seen in the financial services market.    Also advisers at Alliance and Leicester received six times as much bonus for selling a loan with PPI as for selling a loan without PPI. If they did not sell PPI with 50% of loans then they would have their bonus cut by a quarter.
  • Bonuses linked to short term profits over good customer service: senior executives at Lloyds banking group who were in post during the mis-selling of PPI are still scheduled to get bonuses of £3.6 million in Spring 2013.
  • Lack of individual responsibility: The only senior executive at a large institution who has been subject of an enforcement action by the FSA was the chief executive of Land of Leather – a sofa shop.

Which? has continually warned about PPI, from as early as 1998, highlighting the poor value of this insurance and criticised the inappropriate sales practice in the banking sector, but many banks continued to sell them for years after warnings were given.

Last year, Which? launched a campaign to make the banks work for customers, not bankers. More than 130,000 people have already signed our ‘Big Change’ pledge.

Which? is calling for:

Bankers to put customers first, not sales  with pay and bonus schemes, at all levels within banks, that are clear and transparent and prioritise meeting the needs of customers over simply making sales.

Bankers to meet professional standards and comply with a mandatory code of conduct like that seen in the medical profession. It should be independent, backed by statute and contain genuine sanctions for malpractice.

Bankers to be punished for mis-selling and bad practice – senior executives should be individually accountable for the decisions they make about product design and remuneration schemes, with stronger criminal sanctions and bonus clawback.

Key facts:

  • Which? estimates that Payment Protection Insurance (PPI) has cost consumers a total of more than £50 billion since 1996*.
  • Banks and building societies have already set aside more than £13 billion to repay mis-sold PPI.
  • A recent Which? undercover bank staff survey revealed two-thirds of those with a sales role and sales targets say they are under more pressure than ever to meet those targets.
  • Almost half (46%) know colleagues who have mis-sold products in order to meet their targets and four in 10 (40%) say targets drive employees to sell when it’s not appropriate.
  • While 41% say the availability of incentives for sales has decreased, eight in ten (81%) say the pressure to meet sales targets has stayed the same or increased.


* The Financial Services Authority stated that between 2005 and 2010, around £17 billion in total has been paid in PPI premiums (excluding first charge mortgages). Altogether, we estimate that since 1996, over £40 billion of PPI has been sold. It should be noted that the total cost to consumers of PPI will have been greater then this due to the fact that in many cases the premium would have been added to the loan, resulting in extra interest payments by the consumer. Taking these into account, the total cost of PPI to consumers could be close to £50 billion.

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