The Economist UK - 31.08.2019

26 Britain The EconomistAugust 31st 2019

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F

or twoyears Britons have been bom-

barded with bizarre television adverts

featuring the animatronic head of Arnold

Schwarzenegger. In this guise the actor and

former governor of California has been

urging them—on behalf of the Financial

Conduct Authority (fca), a regulator—to

claim compensation for mis-sold payment

protection insurance (ppi) before the dead-

line of August 29th.

Banks, which sold the bulk of ppipoli-

cies, will be even gladder to see the back of

Arnie’s bonce. They hope this week’s cut-

off, agreed on in 2017 with the fca, will

draw a line under a scandal that proved

costly first for consumers and then for the

banks themselves. Between 1990 and 2010

lenders reaped £44bn ($54bn) in premi-

ums—and between 2011 and this June re-

paid £36bn to customers (see chart).

According to Dominic Lindley of New

City Agenda, a think-tank, the total cost to

the banks, including administrative ex-

penses and fines, has been £48.5bn. At one

point Lloyds Banking Group employed

7,000 people to handle ppicomplaints. A

late surge of deadline-beating claims will

swell the industry’s bill. Lloyds made an ex-

tra £550m provision in the second quarter

of this year, taking its total over £20bn.

At some banks, nearly 90% of claims

have been upheld. Average payouts have

probably exceeded £2,000. Britons have

thus enjoyed unexpected windfalls big

enough to splash out on holidays or cars. In

the peak year, 2012, banks paid out £6.3bn,

equivalent to nearly 0.4% of gdp—a handy

boost to consumers when the economy

was labouring under post-crisis austerity.

The fcaestimates that 45m ppipolicies

were sold between 1990 and 2010. Almost

half were attached to unsecured loans, for

everything from cars to catalogue shop-

ping. One-third were linked to credit- and

store-card debt, and one-sixth to mort-

gages. In theory, loans would be repaid if

borrowers lost their jobs or fell ill.

Not all policies were mis-sold, but plen-

ty were. Borrowers were told that they

could have credit only with ppi. Some prob-

ably did not know they were paying for it,

because premiums were quietly bundled

in with interest payments. Some who made

insurance claims were rejected, for exam-

ple because they were self-employed or be-

cause their medical history ruled them out.

Commissions bulked up premiums. At one

bank, notes Mr Lindley, an adviser’s bonus

for selling a loan with ppiwas six times as

much as for one without it. A ruling by the

Supreme Court in 2014, that large undis-

closed commissions on ppi policies

breached consumer-protection law, ex-

posed the banks to further claims.

Claims-management firms, which seek

out policyholders and take a cut of any pro-

ceeds, have done nicely out of the scandal,

even though the fcaand the Financial Om-

budsman Service (fos), another watchdog,

have advised claimants to contact lenders

directly. Britons have been irritated by calls

and texts from claims companies even

more than by Mr Schwarzenegger’s fizzog.

Banks are hoping that claims will now

dry up. But rejected claimants can appeal to

the fosfor another six months and claims

firms still hope to pursue some through the

courts. In any case, the financial-services

industry—which came up with endow-

ment mortgages and fiendish interest-rate

hedges as well as ppi—will surely supply

another outrage eventually, if on a less

spectacular scale. 7

ppiwas a bonanza—first for banks and

then for consumers

Payment protection insurance

Hasta la vista

Waste ppipeline

Source: Financial Conduct Authority *January-June

Britain, PPI refunds and compensation, £bn

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2011 12 13 14 15 16 17 18 19*

He won’t be back

T

im bellloathed rules. In his top-floor

office in Mayfair, a ritzy district of Lon-

don, the man who did more than anyone to

make Britain’s public-relations industry

famous (and infamous) flouted the smok-

ing ban. Even in winter, the smoke from his

daily two packs of Dunhills wafted out of

the open windows. In the street below, his

chauffeur waited to drive him 200 yards

down the road for lunch. “I enjoy being

stared at,” he said, of his choice of a red Fer-

rari. The tvwas always on, blaring Prime

Minister’s Questions or a cricket match. On

a table were pictures of his family and his

friend, client and idol, Margaret Thatcher,

whose uncomplicated devotion to freedom

matched his own.

In death as in life, the role of Lord Bell

(as he later became) in Thatcher’s three

election victories has been overstated. His

job—first at Saatchi & Saatchi, an advertis-

ing agency, and later at his own company—

was to schmooze clients, not to come up

with slogans, like the “Labour isn’t work-

ing” pun that mocked the party’s record on

unemployment. But Thatcher believed in

his magic, smuggling him into Downing

Street during the 1987 election after the

Saatchis had banned him from working on

the campaign, after a falling-out. He was

her “man on the Clapham omnibus”, who

could channel the views of ordinary folk.

He became a courtier, dispensing flat-

tery in gravelly tones at family gatherings

and Christmas Day lunch. “Boxing Day is

just for the cabinet and people who give

money to the party,” he boasted. When

Thatcher recorded television adverts, he

would sit underneath the camera to get her

to relax and speak as if addressing an indi-

vidual not a crowd. Despite her puritan-

ism, she indulged his hard living. She was

amused when, waking from a champagne-

induced stupor to take her call, he sudden-

ly realised he had been burgled. It was Lord

Bell who announced her death, in 2013.

Lord Bell, prman to democrats and dictators alike, died on August 25th, aged 77

Tim Bell

Fake news’s founding father