Mis-sold insurance to cost banks millions

Thousands of customers erroneously sold payment protection insurance (PPI) are expected to win millions of euro in compensation as a result of a Central Bank investigation which has found the problem was systemic.

The Central Bank investigation concentrates in the main on the mis-selling of payment protection insurance to the self-employed, those close to retirement, and those on contract — the bulk of whom were ineligible to be insured under such policies.

The Irish Examiner understands the investigation by the Central Bank’s director of consumer protection, Bernard Sheridan, has uncovered widespread abuse across seven separate financial institutions.

The main years under investigation are 2008, when close to 140,000 PPI policies were sold, and 2009-2011, when a further 136,000 policies were sold. PPIs cover mortgage, loan and credit card repayments in the event policyholders become ill, are involved in an accident or become unemployed.

Mr Sheridan said where breaches are identified “any affected consumers are appropriately restituted”.

The Central Bank’s report on its investigations to date state: “We have completed our initial review of seven lenders and are now commencing further more detailed assessments as the initial review raised a number of concerns.

“We intend to complete this assessment in the first half of 2012 to determine if regulatory action is necessary and will follow up with each firm directly. A summary of the main findings will also be published.”

The Irish Examiner understands that the second phase of the investigation has uncovered a very serious problem for the banks, and that the Central Bank expects that millions of euro in compensation and refunded premiums will have to be paid to thousands consumers who were wrongly sold the products.

The Central Bank’s “themed inspection” is still under way but is already causing concern among officials that the problem was “very, very serious”.

British banks have set aside over £5.5bn (€6.6bn) to compensate British customers who were wrongly sold payment protection insurance. In Britain, it was found that the vast majority of PPI policies were mis-sold.

Legal firm McHale Muldoon has disclosed it has successfully settled a number of cases with Irish financial institutions on behalf of clients who were mis-sold payment protection insurances in Ireland over the past decade.

The settlements were for between €2,500 and €3,000. The company said the same mis-selling tactics that were used in Britain were also used in Ireland.

Michael Muldoon, of McHale Muldoon, said: “We already have over 100 clients in Ireland. We have 20 active cases and have already delivered two successful settlements where our clients have been refunded thousands of euro by leading Irish financial institutions.

“We encourage all consumers who have taken out personal loans, mortgages or have credit cards to contact us as they may have been mis-sold insurance and are entitled to a substantial refund.”