Is debt waiver the answer to the protection gap and the end of the PPI mis-selling saga? Paul Walsh finds out.
Debt waiver is good for borrowers, approved by regulators, praised by politicians and the solution to the UK’s economic woes, according to a recent think-tank’s research.
But, half a year after the FSA and OFT released a statement giving guidance on its introduction, lenders industry-wide are still too frightened to make the leap in a post-Payment Protection Insurance (PPI) world.
PPI changed everything for insurers. The PPI mis-selling scandal has cost Britain’s banks more than £10bn in remediation costs and billions in foregone loans in 2012/2013.
Tellingly, each time the saga seems to be drawing to a close, a new scandal is uncovered, breathing life into what the industry hoped had been quietly dying: damning headlines.
Arguments defending the product itself have been fruitless. PPI at its core was not a poor product. It became contaminated at the hands of providers seeking to make excessive profits: either by charging way over the odds for the insurance, mis-selling to those who would never be eligible to claim on it and in the worst circumstances, adding it on to loans without the borrower’s knowledge.
Not all providers of PPI mis-sold policies, although such examples have been hard to notice among such consumer and market toxicity.
At a recent All Party Parliamentary Group on Insurance discussion on PPI held in Parliament it was revealed that not one of CUNA Mutual’s clients, all within the mutual sector themselves – have had a single PPI complaint upheld by the FOS.
Despite this, defending the product will yield little gain, with all insurers guilty by association.
It was clear from the very beginning that there was no way back for PPI. The product is toxic, rebranding anything that looks even remotely close to PPI would be a fool’s errand, but that’s what many in the industry tried to do.
After that failed, everybody sat and waited for something else to come along, while borrowers became vulnerable and lenders took more risks, or took no risks at all and stopped handing out mortgages.
Feeling the pinch
Five years on from the financial crisis, Britain’s economy has returned to benign growth but remains lethargic as a result of the sheer scale of the recession and, according to recent reports, the lack of consumer activity.
The Trussell Trust, the UK’s biggest voluntary food aid network revealed this month that the number of families it feeds via food banks has increased by 200% in the past three months.
The statistics prove that households remain financially squeezed by rising redundancies coupled with escalating living costs. Consumers, who account for two-thirds of the UK’s GDP have never been in more need of credit to make ends meet but have seen a 58% decrease in available credit in the past five years.
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