Stupid is as stupid does

So if the Daily Mail is to be believed, the banks are about to embark on another compensation round, this time in relation to card fraud protection insurance. Unfortunately, even with a new regulator in place, this trend of retro-identification of miss selling will continue, and for years to come.

Why is it that year after year after year we see regulation with the benefit of hindsight demonstrating that so many consumers have, or so it would seem, been ‘ripped off’ by miss-selling and maybe even miss-buying of financial services products?

Well, in my opinion, it is because the toxicity of miss selling, where it may exist within financial products and instruments, is not discovered and dealt with before release upon the ‘innocent consumer’ as there is no regulatory mechanism to do so.

If miss selling is seen in the same place as a crime in the eyes of the consumer and regulator, then we should be asking what preventative measures are and can be taken.

We do not expect to see drinks, drugs, cosmetics, food, cars and airplanes allowed to be let loose on the ‘unsuspecting’ public before they get a licence from an authorized accreditation body demonstrating they are fit for purpose. This often involves long trials and even longer signing off processes.

The resulting accreditation these products are given places much responsibility at the door of the organisation issuing the certificate confirming it is safe to ‘swallow’, ‘apply’, ‘wear’ ‘drive’ or ‘fly. And consumers expect nothing less.

AMI boss Robert Sinclair recently and very astutely observed that the “Civil Aviation Authority keeps planes, our skies and airports safe for £126m, the Food Standards Agency (yes that other FSA) only costs £110m, so what is it that makes our new FCA so expensive at £446m”?

And he has a very valid point. The aforementioned agencies test for ‘fit for purpose’ and take considerable responsibility for that. They also licence many who work with these products, drugs and services. And when accidents happen they investigate, determine the cause and ensure a repeat of it does not happen.

And in financial services? Er no!

So, perhaps with a new regulator, the focus of the industries money, all £446m this year, should be targeted on a strategy of using intelligence, experience and even common sense to ensure that the toxicity is detected and sterilised before the product is released.

That way the consumer can be comforted when seeing that a ‘fit for purpose kitemark’ stamped on the product they purchase confirms that a body, person or persons has tested it, said it is fit for purpose, specific purposes in fact and has taken responsibility for that affirmation.

So when Robert says that the CAA keeps our skies sake at a cost of £110m, can you imagine the aviation equivalent of financial services miss-selling? Only in this case death is the consumer outcome.

If a plane falls out of the sky, you do not see fines being levied on the manufacturer by the CAA, you see action to ensure that whatever was missed that caused the crash is engineered or trained out so that it does not happen again.

For many years, I and many other commentators have said that so much wasted cost and consumer detriment can be taken out by the regulator if foresight was used rather than hindsight. This principle operates in every other part of consumer life, why not in financial services too?

Only the most stupid person could possibly disagree surely?

It’s about the compensation stupid

We read that “BP has launched an appeal against “fictitious” and “absurd” oil spill compensation payouts

Matters have got so bad that they have asked a Judge to “temporarily halt the payments being made to businesses on an ‘economic loss’ basis”.

BP presented a number of examples to illustrate the madness of the compensation feeding frenzy citing businesses that were nowhere near the coastline affected, one firm was many miles away from the Gulf of Mexico oil spill and it “enjoyed bigger profits during the year of the spill in 2010 and yet still received millions in compensation”.

This is looking like the first example of a very major international business having its future and shareholders interests affected because it agreed to pay compensation in what seemed to be a fair and generous way with the ‘outcome’ (yes that word again) being that fairness was replaced by greed, and as the song goes ‘lawyers guns and money’.

BP has already sold a substantial part of its business to pay out compensation and fines as a result of the disaster and has said it could be ‘irreparably harmed’ by the payouts because they could cost it ‘billions‘ more than it budgeted for when it agreed to a settlement in April 2012.

In its application to the court some of the examples BP offered of ‘absurd’ claims included: a $21 million payment made to a rice mill in Louisiana situated some 40 miles from the coast that earned more revenue than in spill year of 2010 than in the previous three years.

It also made reference to $9.7 million paid out to a highway, street and bridge construction company in northern Alabama, almost 200 miles from the Gulf, which does no business in the region and for which 2010 was its best year on record.

As they say when America sneezes we get flu.

Compensation culture in the UK, fuelled by the pestilence and plague of CMC’s no win no fee legal offers, legal aid and regulatory action has ensured that the compensation trough can see plenty of snouts taking their fill.

Influenza matters in the UK have got so bad that we now see a proliferation of fraudulent claim ‘reporting’ sites.

Here are some examples: the government has Report Benefit Fraud, the insurance industry has the Insurance Fraud Bureau and the Engineering Council sees they have a serious problem around qualifications citing three examples that they are trying to combat.

We even see sites to alert potential fraudsters about how their actions are detected. And one real whopper of a site is dealing with a whole load more.

Have we become a nation of fraudsters created by consumer protection ‘on acid’ where consumers take no responsibility for their own bad decisions because a regulator will make sure somebody else pays where it would appear from the levels of fraud it was not their fault at all.

Regulation is a vital part of UK life today, sadly in many ways, yet it adds so many additional costs and burdens on good, honest businesses.

Surely something must be done to ensure that those who have actually lost out, through no fault of their own, get appropriately compensated and those that have not get dealt with robustly by the legal system, and without the protection of legal aid or in our industry the seemingly automatic call for funds, without limit or logic, from the FCA, FOS and FCSC.

Only 10 Percent?

I read with a mixture of incredulity and despair that discussions regarding ways to put an end to PPI claims have broken down with no positive ‘outcome’ for those consumers miss-sold PPI.

That was the despair.

The incredulity?

It was reported that Natalie Ceeney, chief executive of the FOS, claimed last month that only 10% of customers ever sold a PPI policy had so far made a claim for compensation.

Ms Ceeney has criticised the banks for “demonising customers” and said the ombudsman would be hiring a further 1,000 staff in the next six months to help deal with PPI claims.

What is going on out there?

Whilst not doubting there has been miss-selling of the product, a whole industry of ambulance chasing CMC’s  have long ago set up camp (quicker than the current Romanian model seen at the disused Hendon FC ground) to feed upon misfortune and with only 10% having claimed, it is clear now what the CMC sees as opportunity.

In January the FOS said it expected to see a 42% rise in new claims in the current financial year, driven by an unprecented number of PPI cases, which had “dramatically exceeded” their assumptions.

That would, if my math’s is correct take the figure to 14.2% of customers miss-sold a PPI policy.

The PPI issue and CMC’s has been a scourge to advisers and also it would seem the FOS. But with all this noise and massive marketing spend providing encouragement to claim, if only 10% of those ever ‘sold’ such policies have expressed discontent and made a claim, are we looking an industry attempt to now ‘groom’ claims from the remaining 90% that appear not to be troubled or simply do not care?

The latest estimates show that the total cost to banks for miss-selling PPI is likely to come to £25 billion, almost double the near-£13 billion banks have already put aside.

In a recent consultation paper, the FOS said consumers were currently referring more than 5,000 new PPI cases each week, and it expects to receive around 250,000 new cases by the end of the current financial year (2012/2013) – against a planning assumption of 165,000 cases.

These figures are simply staggering, how many are genuine is not certain (given that many claimants have not had any such policy at all) yet Britain’s biggest banks have already set aside over £12bn to compensate customers. Lloyds, who has the most customers of any UK bank, has earmarked £5.3bn for claims.

If Ms Ceeney is correct and only 10% of those ever sold a PPI policy have complained (although the sums and numbers involved are looking high) this is not a miss-selling scandal and it seems a little odd that an organisation so resource stretched should be seen spending time trying to encourage the 90% not apparently concerned, to complain.

Compensating consumers who are genuinely concerned with a demonstrably legitimate grievance is the correct thing to do, seeking out those that really do not care does not.

And that may be why the banks have decided enough is enough?

PPI Madness – Shelter from the storm. PPI Madness continues with the ‘not sold’

Lloyds has set aside yet more money, a further £1 billion in fact to cover its payment protection claims. It has also made provision for £2.07billion (yes billion) to be set aside to cover a positive tsunami of potential PPI claims on their way.

Barclays saw profits hit after making provision of some £850m to compensate for miss-sold PPI. In total they have stockpiled £1 billion this year as they are seeing “higher than previously anticipated levels of PPI claim volumes.

The complaint numbers are simply staggering. RBS/ NatWest received 365,000 PPI complaints from January to June. HSBC had 170,064 complaints and Spanish bank Santander said its complaints rose by 42 per cent this year.

How did this get so bad?

Did nobody spot the warning signs, did nobody see that policy restrictions would mean that so many would never see a successful claim outcome.

PPI miss-selling is a disgrace to the financial services industry, furthermore it has fuelled a sub class of ambulance chasers who now feed on the ‘not-sold’– those who have never even had such a policy.

An example of this arrived in text form on my wife’s phone on the 30th October, it said:

“Records passed to us show you’re entitled to a refund approximately £2130 in compensation from miss-selling of PPI on your credit card or loan. Reply INFO or stop”

It came from a mobile, probably based in India or Spain; 07760 7377. My wife has never had such a policy.

Anthony Bolton, Principal Officer, Claims Management Regulation Unit at the MoJ provided some good advice on dealing with these texts:

Don’t reply to the text message. The messages are usually sent in their thousands by data farmers trying to establish which numbers are live, so don’t respond to the number at all (not even STOP or anything not as polite) as this may result in a whole host of other marketing texts/calls (not limited to claims management).

Our difficulty here is identifying who is behind these messages. Different people can be behind the sending of the message, receiving any responses and those who follow them up (the data being sold on). We are currently working with the Information Commissioner’s Office, OFCOM, the Direct Marketing Association and the network operators to tackle the issue.

There are a couple of things we recommend people receiving text messages to do;


  1. 1.            Forward the text message to your (wife’s) network operator who will use this information to try to disable the number it came from. The operators have come up with a short code number to forward messages to. It is 7726 on most networks (or 87726 if it is Vodafone).
  2. 2.            Provide the information to the ICO via their online survey They are acting as the intelligence hub for this type of activity and possess the powers to deal with those breaching the Data Protection Act and the Privacy & Electronic Communications Regulations.

 The ICO have identified a number of targets and we are awaiting their final decision on the first notice they have issued re. their intention to fine two individuals in excess of £250,000. The story got a bit of publicity a few weeks ago and we hope that this will be a significant step in tackling the problem (

I will also make a note of the text on our system to see whether this ties in with any other information we hold to help identify the sender”.

Where does the blame lie? Well I guess with the architects and manufacturers initially, mostly banks, and then to the incentivised sellers who need to ship the ‘product’ to an unsuspecting customer.

As Dylan sang “Well the deputy walks on hard nails and the preacher rides a mount. But nothing really matters much it’s doom alone that counts”

And that doom now extends to a sub-class exploiting an almost unregulated marketing opportunity of the very worst kind. As they say, out of adversity comes opportunity in this case the ‘not-sold’?

PPI clearly falls into the realms of regulation, where was the regulator while this multi billion pound toxic mess was being incubated? If there was ever an example of a product that needed regulatory approval- a licence to say ‘fit for a defined purpose’, this is it.

You can learn a lot here on how the MoJ deal with spurious CMC complaints, a simply huge problem.