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PPI redress could cost industry £232m

The FSA’s decision to force firms that sold PPI to review 185,000 previously rejected complaints and redress any consumers who have been missold policies could cost the industry up to £232m.

The regulator’s new guidance on PPI sales, which says providers must give a fair assessment of all PPI complaints and redress where appropriate, could see providers pay annual redress costs of £80m.

However, the FSA says if its new guidance has a “low impact”, firms will face an annual redress bill of around £58m, which will go directly from firms to complainants.

Its second proposal, for all firms that sold PPI to review 185,000 previously rejected complaints, could result in a one-off transfer cost of £57m to £115m from firms to complainants, with the average redress per upheld complaint around £930.

In addition there will be a one-off administrative cost associated with reviewing the 185,000 PPI complaints of £37m, or £200 per case.

To date firms have rejected around 60 per cent of PPI complaints on average, with some firms rejecting nearly all. The FSA has imposed fines totalling £11.8m

The consultation paper says: “It is possible that firms face some incremental costs from expending more resources to now deal better with these complaints than they would have done previously. It is expected therefore that firms will pay out more redress than they currently do as a result of our proposals.”

Providers have one month to contact the FSA with any feedback from today’s paper.

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