PPI: banks’ golden goose has come home to roost

An ounce of honesty inside the banking system could have prevented costs escalating out of control

The financial ombudsman is right when she says the banks have only themselves to blame now that the bill for PPI mis-selling has more than £12bn.

Bank executives complain loudly about ambulance-chasing lawyers and complaints-handling outfits that have exploited the situation to encourage thousands of spurious claims and cream off millions of pounds for themselves. Yet an ounce of honesty inside the banking system could have prevented costs escalating out of control.

Instead they lobbied hard with the regulator and government against any crackdown on what was obviously a dodgy product. Victory secured, they carried on selling the insurance for several years longer than was prudent.

They also, once the scandal was beyond dispute, insisted that the regulator force individuals to make a claim for compensation, much as they had when the endowment misselling scandal hit in the late 1990s.

Believing it to be a clever ruse, the banks convinced themselves this strategy would avoid the huge costs of the personal pensions misselling scandal of the early 90s that saw them going through every file to determine how much each individual was out of pocket.

There was much to gain from putting off the reckoning. Individuals such as Barclays boss Matt Barrett and Lloyds chief Peter Ellwood, who both earned huge bonuses on the back of PPI profits, should be answerable for knowingly duping the public into purchasing policies they would never be able to claim on. In the US they charge the sellers of such products with racketeering.

Executives from all the major banks, as this paper revealed in 2004, met several times a year in Dublin, where they based their insurance arms to benefit from low taxes. The meetings were part of a conspiracy to protect what had become a golden goose for the industry. Public relations strategies were discussed and questions from the regulator answered by this secret cabal.

The regulator refused to investigate until forced to by a super-complaint by Citizens Advice. Even now the regulator has ignored the conspiracy element of the story. A whistleblower talked to the Guardian. No one from the Financial Services Authority has shown any interest in talking to him. It has never asked who attended the meetings in Dublin or requested minutes of what happened. If the banks want to deny the meetings took place, fine – then the offshore operation was a sham, and they owe the exchequer millions in unpaid corporation tax.

Phillip Inman

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