By Daniel Hunter
In a letter to The Times on Monday the Confederation of British Industry's director-general, John Cridland, called for an end to payment protection insurance (PPI) claims.
Cridland argues that it is right for consumers to get swift redress - but money could be put to work more productively through lending.
John Cridland's letter in full
I have lost count of the number of cold calls I have received inviting me to claim for accidents I thankfully haven’t had. But my current irritation is spam texts, many of them to my personal mobile, inviting me to claim for payment protection insurance (PPI) mis-selling. An evening in front of the TV should allow you to escape from such intrusion but commercial television seems overrun with similar appeals.
PPI mis-selling is seen as a huge scandal that should never have happened and it is right that consumers are able to get swift and proper redress. But banks are sending out tens of thousands of compensation payments and cheques and there is a real sense that the ball is now firmly in the court of ambulance-chasing claims-management companies.
The big banks have already earmarked £11 billion to provide redress on PPI, with analysts suggesting that the figure could reach £15 billion. Financial helicopter drops on this scale might help lift consumer spending in the short term, but should payments really be made in cases where there is no real evidence of mis-selling?
This is money that can only be spent once and I can’t help thinking that the time has come for it to be put to work more productively through lending into the economy. Banks are hamstrung enough, rebuilding their capital buffers to inject much-needed stability in the banking sector, without this continued millstone around their necks.
I firmly believe we now need to draw a line under PPI and I am urging the Government to consider the introduction of a statute of limitations for all PPI claims, capping the time during which legal proceedings can be initiated. Such a move could be reinforced by the Financial Services Authority declaring that the point at which consumer awareness of PPI mis-selling is widely known has now legally been reached.
And am I alone in my concern about the recent High Court ruling on the Guardian Care Homes case? The company is seeking compensation for being sold products that were based on Libor rates.
Banks must be held accountable for manipulation of Libor and the Wheatley Review has set out a comprehensive and compelling case for reform. But hindsight is a wonderful thing. It would be a dangerous precedent if banks were to be held responsible for products sold that related to Libor. Government needs to be prepared to step in to head off judge-led law if necessary.
The Government itself is in danger of opening yet another Pandora’s box by introducing US-style “opt-out” collective actions in competition cases. This is simply the wrong prescription at the wrong time and will only benefit the litigation industry.
There are much quicker, cheaper and more effective ways of delivering consumer redress. The Government should drop this proposal before the genie is out of the bottle on class actions. I admire so many things about America but I do not want UK businesses, which are busting a gut to deliver growth and jobs, to have to live under the shadow of constant legal battles.
Perhaps our growing army of regulators could do more to help. The CBI has campaigned hard and long for a growth objective to be given to new financial regulators, including the Financial Conduct Authority, which will be given the task of policing the consumer-facing parts of the financial services sector. Delivering growth should be entirely consistent with delivering customer satisfaction. So I have to question Martin Wheatley’s professed “shoot first, ask questions later” philosophy.
None of this should be interpreted as a call for a return to the bad old days. Banks have much to do to repair damaged relationships and the only way for them to win back trust is through delivering quality services for customers.
But right now they do need to be able to focus on doing their job for the economy and that means that all government institutions need to be squarely behind them and committed to the growth agenda.
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