‘Different rates’ of compensation paid for PPI

Serious questions have emerged surrounding the robustness of the Central Bank’s investigation into payment protection insurance after it emerged that the banks were allowed to set their own rates of compensatory interest.

Banks and insurance companies have been forced to pay out more than €67m in compensation in relation to Payment Protection Insurance (PPI), according to the Central Bank.

However, the regulator said that there are different rates of compensation being paid out by the financial institutions who were involved in the review.

“Refunds paid to consumers include the premiums and any interest paid by the consumer where the premium was borrowed. On top of this firms were required to pay appropriate interest. An interest rate, satisfactory to the Central Bank, was set by the individual credit institutions,” a spokesperson for the Central Bank said.

Allowing firms set their own rates means that two people who mis-sold very similar policies could get completely different rates of compensation, according to solicitors McHale Muldoon.

“We would find it completely unfair that a consumer mis-sold a policy by one credit institution will receive a lower rate of compensatory interest than a consumer mis-sold by a different credit institution. We feel the Central Bank should clarify this as a matter of urgency and issue an overall rate which it feels all credit institutions should refund.

In the UK the FOS has given a rate of 8% (in line with statutory court interest) for all claims and issued guidance to the credit institutions on how the refunds should be paid,” a spokesperson for McHale Muldoon said.

A review of sales of Payment Protection Insurance (PPI) by 11 credit institutions found that in a fifth of the cases reviewed customers were entitled to a refund.

Some 77,000 policy holders are being refunded €67.4m as the banks and insurance companies could not prove that they complied with the Consumer Protection Code when they were selling the policies.

The regulator looked at 11 credit institutions including AIB, Bank of Ireland, Bank of Scotland Ireland, Danske Bank, EBS, KBC Bank Ireland, Permanent TSB, RaboDirect Ireland and Ulster Bank. They also reviewed policies from GE Capital Woodchester and MBNA Europe Bank.

Director of consumer protection, Bernard Sheridan, said that some people who are entitled to refunds have not engaged with the bank or insurance company who sold them the policy.

“This review has resulted in €67m being identified for refund to 77,000 policyholders. Some payments have not yet been made as approximately 6,000 of those policyholders have not responded to letters issued to them by their credit institution. The Central Bank strongly encourages consumers to act on the letters they have received from their credit institutions,” he said.