Problems with the Payment Protection Insurance have resulted in the Liverpool Victoria Banking Services (LVBS) being fined £840,000. This was because the bank added the cost of this insurance to the customers’ accounts without their permission and without a request from the customers. The 14, 500 customers that took out payment protection policies between 2005 and August 2007 will be reimbursed automatically for the interest on the extra amounts of money that they paid for such insurance. The LVBS has apologized to its customers for this drastic mistake.
According to the city watchdog, the cost of the payment protection plans was added to unsecured personal loans at LVBS, which brought the average cost of borrowing to £1000. Even when customers stated that they did not want this additional cover for their loan, they had so much pressure placed on them by the bank that they finally agreed to the extra cost.
LVBS claimed that the details of the program were explained in the fine print of the loan documents, but this argument did not have any weight in helping them avoid the hefty fines. The director or enforcement with the FSA, Margaret Coles, stated that the LVBS design was flawed. She said that the organization has made it ‘abundantly clear that firms must make sure their PPI sales processes are up to standard’ and if they are not then the firms must change their practices.
LVBS has since stopped selling insurance cover for its loans. In the period affected, the 14,500 personal loans approved by the bank accounted for more than half of its business. The customers affected have been asked to review their loans and if they find they have been charged for such insurance without their knowledge, the bank will refund the interest on such moneys. However, in its statement, the bank does include the phrase ‘where appropriate’ when referring to the funding.
The LVBS was not the only bank to be fined for this practice. Earlier in the year, the Financial Services Authority handed down a fine of one million pounds to the HFC back, which is part of the HSBC banking group. The Payment Protection Plans sold by the bank is insurance cover that will make the payments on any loans having such cover in the event that the borrower becomes ill and cannot work or if the borrower becomes unemployed and does not have an income.
In the case of HFC, the FSA investigation revealed that the bank had added payment protection insurance to the loans of 160,000 customers who had not asked for such cover. In addition, the bank failed to make sure it had proper record keeping in place for all of its insurance sales and that there was so system in place to allow senior level management to monitor the sales of this insurance. The bonuses paid to the sales staff of the bank came from the sales of PPI, which is why the staff displayed so much initiative in trying to get customers to purchase the insurance.
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