FOS Funds Run Out As The PPI Debacle Continues

09/04/2011 by admin.

Since October 2010 some members of the British Bankers Association (BBA) have refused to deal with any new claims for missold Payment Protection Insurance (PPI).  Those at the forefront of this are Barclays, HSBC, Lloyds and BoS who have now all reported they will put all new PPI complaints on hold until the outcome of the Judicial Review is published.  The stand-off between the BBA and the Financial Ombudsman Service (FOS) has led to more and more PPI complaints now being sent to the FOS. This is because the FOS has declared that putting PPI claims on hold is not fair and once the consumer receives a letter from their bank confirming their claim is on hold, this is a trigger for them to send it direct to the FOS.  The FOS is now reportedly receiving between 8,000 and 10,000 new PPI complaints each week, and there is no end in sight. As the PPI debacle continues, one thing became clear was the FOS is fast running out of money to deal with all these new PPI claims. Some suggest at a rate of £1M a month.  

Of course, if the FOS runs out of money, we have an unparalleled situation where the banks sit on one side, the consumer on the other and nobody to adjudicate on the middle. As it is the sheer volume of PPI complaints being received by the FOS means they are taking up to 30 days to acknowledge receipt of a new claim and anything from 4-6 months for PPI claims to be reviewed. A situation that can only favour the banks !To refill the fighting fund, the Financial Services Authority (FSA) will issue a compulsory levy to raise £25 million to build up the reserves of the FOS. The FSA has confirmed that it will raise £25 million for the FOS through a compulsory levy in June after consulting on the proposal in February.

The regulator has moved to bolster the reserves of the FOS over concerns that the Ombudsman could run out of cash in as little as 6 weeks as banks facing more and more PPI complaints refuse to pay case handling fees until the issue is resolved. The FOS released a statement confirming just how serious the current situation surrounding PPI claims really is. A spokeman said “we need to increase our financial reserves by £25 million, as a contingency against the costs of growing volatility of which the latest example is the range of issues around cases involving payment protection insurance”.The FOS said the £25 million will only be used to insulate it from volatility of its income and cost and would not be used to tackle routine issues. The FSA has not concluded how the £25 million levy will be divided between financial advisers, banks and insurers.

Amongst all this the FOS has still confirmed that PPI complaints should still be made as normal. Anyone who has been sold PPI in the last 6 years should check their finance agreement and PPI policy. PPI claims should still be sent to the bank in the fist instance. If they do not deal with your PPI complaint properly within the statutory 8 week perdiod or put your PPI claim on hold, you can still send your claim to the FOS.

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