The Central Bank is poised to take enforcement action against most leading Irish lenders for duping vast numbers of Irish borrowers into paying for worthless Payment Protection Insurance (PPI). This cover can temporarily pay your loan and mortgage if you get sick or lose your job. Attaching it to a credit agreement reduces risk to the lender and pays lucrative commissions typically 40% of the premium, usually priced at 6% of annual mortgage repayments. The scam, which is set to cost the UK lending industry £8 billion, is the failure to disclose the sale of the insurance to borrowers many of whom simply don't know they are paying hundreds of Euro per year for it or where it has been disclosed, the failure to explain its exemptions, terms and costs.
But huge compensation payouts for PPI mis-sold in Ireland may be scuppered because the Central Bank cannot legally apply its enforcement powers before it first introduced a detailed Code of Conduct in 2007. That means a deluge of claims will fall to the Financial Services Ombudsman (FSO) when consumers twig they've been scammed.
But unless the FSO seeks a simple adjustment to its six year rule, any claims about PPI unknowingly entered into over six years ago will be repudiated by it. The six year rule can be changed by simple Ministerial order or by a High Court ruling to run the clock from the date that consumers recognise the loss, not from the inception of the mis-sold policy.
So will the FSO fall victim to the classic civil service crisis response of shrinking the scale of the problem to fit its resources or will it gear up and take on the big boys guaranteeing to rule on any PPI mis-selling within three years of consumer knowledge? The moment of truth has arrived for the Ombudsman. How it jumps will determine its legacy.