John Cridland, the director general of the CBI has called for a time limit to be put on when people can apply for compensation for being mis-sold payment protection insurance (PPI).
Mr Cridland believes the ongoing saga is crippling banks and that the money set aside could be better used by the banks to help the economy.
PPI was sold to people to cover them for repaying loans if they became ill, lost their jobs or had an accident but many people were sold policies that they are unable to claim on or sold the product without understanding what it was, or, in some cases, without them even knowing they had been sold it.
Writing today in The Times newspaper, Mr Cridland said: “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.
“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,” he added.
Mr Cridland said that everyone who could possibly have been mis-sold PPI should now be aware of it and have put in a claim.
Under current legislation customers have six years from when they realised that they had been mis-sold PPI to when they make a claim.
Many claims have been paid by the banks without further investigation because banks need to clear backlogs and do not have accurate records to win cases when they are referred to the Financial Ombudsman Service (FOS).
Mr Cridland argues that this is going to mean that banks have this hanging over them for the foreseeable future and it will impact on other business activities to the detriment of the wider economy.
He wants a time cap put in place immediately so that there would be a six-year window from now in which people could claim for PPI compensation.
So far banks have set aside more than £13 billion for PPI claims and analysts believe this figure could rise to more than £15 billion. So far less than £6 billion has been paid out to potential claimants.
The level of claims has been driven by claims management companies (CMCs) who offer to do the legwork in return for a fee averaging around 15 per cent plus VAT of the repayment. The average repayment so far has been £2,750.
The Financial Ombudsman Service (FOS) is still receiving thousands of complaints about PPI each month. In the first six months of 2012, they received 85,562, a 75 per cent increase in PPI complaints compared to the last six months of 2011.
Mr Cridland said: “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.”
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