Any other business | 14 May 2011

The latest mis-selling scandal is one more symptom of a deeper problem

The payment protection insurance (PPI) scandal is, by common consensus, the worst case of financial mis-selling until the next one. These policies were foisted by banks on personal borrowers, supposedly to cover repayments if they fell ill or lost their jobs or encountered some other misfortune. But in many cases borrowers were not aware they were being charged for the cover, or were told falsely that they were obliged to buy it. If they were self-employed or too old, they would never have been able to claim on it anyway. Now the banks, led by Lloyds and Barclays, have abandoned their legal challenge against retrospective changes in FSA rules on selling PPI, and estimates of compensation required to placate offended borrowers are at £6 billion and rising.

Who will pay for that? The banks’ poor bloody shareholders, that’s who, and not their grossly overpaid top executives, who will remind us that they were many layers removed from branch staff who failed to read the small print of the PPI product before flogging it — just as insurance salesmen inadvertently mis-sold personal pensions a generation ago. The high-street sales force, we will also be reminded, do not earn big bonuses, so please don’t confuse this mis-selling issue with arguments about excessive pay. But, partly to deflect bonus envy, branch staff nowadays can routinely pick up incentive payments for products sold or referrals made to other departments — and that colours the ‘advice’ they offer to customers. Remuneration structures from top to bottom of the financial services industry have evolved in a way that acts against the best interests of customers and shareholders. The PPI scandal is just one more symptom of a deeper problem.