Banks forced to pay back €25m to customers

Banks have been forced to pay €25m back to customers wrongly sold payment protection plans and have been warned they face further heavy fines.

A review by the Central Bank into the payment protection insurance (PPI) schemes found widespread abuse across the industry with 43,000 policies deemed to be mis-sold.

The investigation began in 2011 and so roughly half of the 350,000 PPI policies sold since 2007 have been examined.

PPI covers customers who cannot make repayments on loans or mortgages in the event of them having an accident, losing their jobs, or becoming ill.

However, thousands who are barred from making claims under the terms of the policies — including the self-employed, home-makers, and part-time workers — were wrongly sold the insurance.

Lenders were ordered to carry out independent reviews of 350,000 policies, sold since July 2007.

The Central Bank said more than half have been reviewed to date, with one in five found to have been wrongly sold in breach of consumer protection regulations. Customers are to be reimbursed.

The review of the 11 financial institutions — AIB, Bank of Ireland, Bank of Scotland, Danske Bank, EBS, GE Money, KBC Bank Ireland, MBNA, Permanent TSB, Rabodirect Bank Ireland, and Ulster Bank — has so far seen €25m returned to customers and is expected to conclude by the end of the year.

A Central Bank spokesperson said that the decision on what, if any, sanctions will be imposed on the banks will be made at the end of the review.

Bernard Sheridan, Central Bank director of consumer protection, said customers need confidence that they are being sold suitable products and services.

“Following our initial investigation, we have required firms to undertake a review of PPI sales since July 2007, overseen by independent third parties, to write to all affected customers, and to offer a refund or retention of their PPI policy where the sale failed to comply with the code,” said Mr Sheridan.

The comprehensive review of the banks’ PPI policies is part of a much more intrusive approach to regulation since the financial market collapse.

“The rules have always been there — the difference is that now they are being enforced,” said one senior financial source, who did not want to be named.

“The relationship between the financial regulator and the banks was far too cozy in the past. That has now changed.”

In Britain, a probe into PPI mis-selling found that, since 2001, there were 34m cases, which has cost the banks £14bn (€16.6bn) in fines and compensation.

According to the Central Bank, the aim of this review is to “provide a straightforward mechanism for the consumer to be redressed where policies were sold in breach of the code, without any cost to the consumer. The review should eliminate the need for consumers who were sold PPI by the firms above since July 1, 2007, to engage third parties or go through a legal process.”

All consumers with policies that fall within the scope of the review will be contacted by their firm by the end of this year.

Consumers who are not happy with the outcome of the firm’s review or who are unhappy with any element of the sale of their PPI policy should contact their firm directly, it added.