Saturday, November 17, 2012

Bank scandal settlements: another opportunity to behave badly towards customers

In her Guardian column, Jill Treanor looks at the handling of claims for mis-sold payment insurance.  What she finds is scandalous by itself.

On paper, the handling of claims seems sensible.  Customers who paid for payment insurance file a claim showing why the insurance was unnecessary in their case (for example, the customer had a job with an employer that provided sick pay).  The bank confirms this and sends the customer a check.

In reality, this handling of the claim is entirely for the banks' benefit.

First, customers have to take the initiative to file a claim.  The banks know that even with companies that will process the claim for the customer a substantial portion of customers will never file a claim.

If the customer doesn't file a claim, the bank gets away with its mis-selling.

Two, once the claim is made, the banks can reject the claim if it cannot confirm the reason insurance was unnecessary.  The banks know that there is some complexity in confirming or denying the claim and that errors will most likely result in denial of the claim.

If the customer's claim is denied, the banks profits from mis-selling are reduced by cost of processing the denied claim.

Third, once the claims has been denied, the customer has to take the initiative to refile it through an ombudsman.  The ombudsman has found that 25% of these claims should not have been denied and should have been paid instead.

If the customer doesn't refile their claim through the ombudsman, the bank gets away with its mis-selling.

The reason I went through the claim handling in detail is to show how banks continue to engage in predatory behavior even when it comes to settling up for conduct that they engaged in that was detrimental to their customers.

The banks' handling of mis-sold payment insurance is not unique.  Banks set up a similar process for handling claims under the representation and warranties section of residential mortgage-backed securities.

The ombudsman service, led by Natalie Ceeney, has little sympathy for the banks. She told MPs last month: "Banks not investigating cases properly played into PPI firms' hands. In a quarter of cases where banks said customers didn't have PPI, they did – the banks were not doing their job properly."....
Many people have never heard of the financial ombudsman service until they start a PPI complaint, yet the service can be invaluable. The ombudsman is now receiving up to 400 PPI complaints an hour, and upholding seven in 10 cases in the consumer's favour, with compensation averaging £2,750.  
In a quarter of cases where banks tell a consumer no PPI policy ever existed, the ombudsman later finds the bank was wrong. 
"We often find rudimentary searches have not taken place. For example, postcode searches, previous addresses, maiden names and checking both people on a joint policy," said a spokesman for the ombudsman. 
"Alternatively, we've noticed a reliance on some banks to dismiss complaints on the basis of what's showing on the computer, rather than actively searching for the documents that might establish what actually happened with each complaint."
What the ombudsman service shows is just how rigged the process of settling mis-sold payment protect is in the banks' favor.

It would not be surprising if the same statistics did not occur for mortgages that the banks refused to buy back under the representation and warranties claims by investors or guarantors of mortgage-backed securities.

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