Banks may be forced to pay back £4bn in mis-sold insurance scam Banks and insurance companies may have to pay a staggering £4bn to customers who were taken in by a 'loan protection racket', it has emerged.
City watchdogs have published their first estimates on the scale of repayments due to people sold payment protection insurance (PPI) alongside personal loans, mortgages, credit and store cards.
Vast numbers of the expensive policies were sold to customers without proper checks on whether the policies were suitable.
The PPI was sold to consumers on the basis it would provide a safety net to cover loan repayments in the case of sudden unemployment or sickness.
However, commission-hungry salesmen sold PPI to people who would never be able to make a claim, including pensioners, those in seasonal work and people with long-standing medical conditions.
The Financial Services Authority (FSA) said paying refunds and compensation to customers who have not yet complained could generate a bill of £1bn-£3bn. It suggests there will be another £700m to £1.2bn over five years for customers who have already complained.
The FSA estimates that insurance brokers may have to pay up to £430m with the rest paid for by a varying range of PPI providers, led by banks and insurance companies.
The watchdog estimates that average redress for people who bought single premium policies is £1,925. It is a lower £990 on average for people who bought the policies via monthly premiums.
The FSA has previously fined a number of household name banks and insurance groups for mis-selling PPI.
First published in the Daily Mail
