PPI: Fact or Fiction

I am sure you are sick of the phone calls, texts, adverts, etc. from companies promoting their services to assist with your PPI claims. It seems that if you once walked past a bank on the high street then you have pretty much met the criteria to claim.

 

Whilst this seems to have been dragging on for years, the intensity of the phone calls, texts, adverts, etc has gone up a few levels over recent times……and with good reason.

 

The simple facts are:

 

- Some 64 million Payment Protection Insurance (PPI) policies were sold in the UK according to the Financial Conduct Authority (FCA).

 

- Just 12 million people have so far successfully claimed compensation for being mis-sold (which equates to 24 million policies).

 

- The FCA have set a deadline of 29 August 2019 to make a claim.

 

- £27 billion has been paid out in compensation by the banks to date, with a further £10 billion set aside for predicted future claims.

 

Clearly not all of the PPI policies will have been mis-sold and there will have been a genuine need for the individual to have the policy. However, that is not the issue. Banks need to prove that the individual had a genuine need for it, document appropriately and justify a recommendation. And that is where it all falls down……the banks collectively didn’t keep sufficient records to justify the policies and the regulator assumes inappropriate mis-selling if that is the case.  

 

With around 2/3rds of policies still not checked, expect this mess to get bigger.

 

I wonder what the PPI claims companies will turn their attention to next?

Introducing Crawford Falconer

Crawford Falconer……could this be the most important man (economically speaking at least) to be ‘positioned’ in our lifetime?

 

He will be the man in charge of negotiating the UK's trade deals once Brexit is finalised and starts his new post as Chief Trade Negotiation Adviser at the Department for International Trade this week.

 

Interestingly, he is from New Zealand. More significantly though, he is a former ambassador to the World Trade Organisation (WTO) and has a wealth of experience in such trade negotiations. Certainly a lot more than the UK……for the past 40 years trade deals have been managed by Brussels.

 

Mr Falconer will be responsible for developing and negotiating free trade deals with countries outside the EU, striking deals with a range of countries covering specific sectors and products and supporting the UK as a member of the WTO.

 

At the last count, he has in excess of 100 non-EU trade deals to thrash out in less than 2 years……roughly one trade deal a week seems like a tough ‘inbox’ to be starting a new job with!

 

We can only wish him well……we need him to do well.

Red Bus Rubbish

 

If ever you want to understand the utter rubbish we must decipher from Westminster before we make thoughtful decisions on how to vote, the ‘red bus’ that went on tour prior to the Brexit vote sums it up perfectly.

 

You remember that red bus (dubbed the ‘Brexit Battle Bus’)……the one that Boris Johnson took on tour with the slogan “We send the EU £350 million a week – let’s fund our NHS instead”. It was hard hitting. It got the message across. It worked. ‘Leave’ won the referendum. Job done.

 

The problem was, it was complete nonsense……which has now been confirmed by Treasury figures this week that reveal the UK made a total net payment of £8.1 billion for the 12 months to March 2017. This works out as a net payment of £156 million per week to the EU (after rebates and EU payments to the UK’s public sector have been taken into account). £350 million v £156 million. That’s one huge overshoot / lie / fib / misrepresentation / inaccuracy / embellishment / fabrication / distortion (delete as appropriate).  

 

Interestingly, the UK's weekly net contribution to the EU Budget of £156 million is the lowest since 2012.

 

Back to the point though……why has it been simply accepted that it is ok to mislead on such a scale for political gain? Why has nobody been held to account?

 

We have to base our voting decisions on the information and messages we are given……basing our decisions on false facts demeans the power of our vote and makes democracy laughable.

 

For the record, Boris Johnson has been ‘penalised’ for the lie……he has been given one of the top 5 most powerful positions in Government (Secretary of State for Foreign and Commonwealth Affairs).

 

What a farce.

Missing The Pension Point

The press and media have been very busy with a report issued by the Institute for Fiscal Studies (IFS).

 

From 2010 to 2016 the State Pension Age was increased from 60 to 63 for women as part of the ‘equalisation’ of the State Pension age for men and women to age 65 and the IFS report has confirmed that this will provide a £5.1 billion annual boost for the Government. Or to put that another way, 1.1 million women have been impacted by receiving their State Pension at an older age and the Government is saving £5.1 billion a year as a consequence.

 

Enter campaigning and rights groups arguing against the morality of it all. I get it……I really do get it. I have family that have been affected. But there are bigger points here.

 

Firstly, there has been no alternative offered and the age that the State Pension is received has been dictated. Surely it would not have been unrealistic to offer the original State Pension age but at an increased cost for an individual? Give us a choice. The Government would not have had to foot the bill, so why not options?

 

Secondly, we live in an age when private pensions aren’t understood or trusted (or both) and 80% of company pensions have a big black hole of underfunding. Is it really too much to ask to have a State Pension that would provide more than £155.00 per week and at an age that can be chosen individually?

 

Yes, it might be complicated to calculate and design a new scheme. Yes, it might not win many votes with the under 30’s if they have to pay more National Insurance Contributions. Yes, it will have teething problems. BUT……we are one of the most economically advanced countries in the world and it is doable.

 

Alternatively, we can let each Government that comes around every 5 years (or is that months?) mess around with the State Pension and come up with no solutions as there is nothing in it for them in the short term. Why not leave a legacy? That’s what leading the country is all about rather than simply balancing the books (together with immense borrowing – it’s a ‘kind of’ balancing) as simply as possible.

 

Oh how I would love a ‘leader’ to be Prime Minister.

 

One day maybe.

Car Finance Out of Control?

 

Warnings over excessive and risky borrowing in the car finance market are evoking memories of the financial crisis. Regulators on both sides of the Atlantic are becoming increasingly concerned about the car finance market, amid mounting fears that the same practices which created the financial crisis of 2007 / 2008 may be happening all over again.

 

In the UK, British households borrowed a record £31.6 billion in 2016 to buy cars (up 12% on 2015) according to the Finance and Leasing Association. A similar phenomenon is apparent in the US, where the value of outstanding car loans rose to $1.1 trillion (£880 billion).

 

However, it’s not so much the growth in car finance that is worrying regulators, but the nature of the debt and how financiers are managing it.

 

In the UK, around 9 in 10 loans are personal contract plans (PCPs), where buyers pay a small upfront deposit and then commit to making a monthly payment for the next three years with the option to buy or hand back the car at the end of this term. Very often (analysts suggest) these plans are being offered to borrowers with poor credit scores.

 

Similarly, economists in the US warn that there has been a sharp increase in loans to poor credit scorers over the past 5 years……no surprise that the arrears are rising at an alarming rate.

 

Another thing the US and UK car finance sectors have in common is securitisation, with the finance arms of leading motor manufacturers working with investment banks to package up their loans into tradable asset-backed securities, offering an income stream financed by borrowers’ repayments. Such securities are attractive to investors looking for yield in an environment where ultra-low interest rates make income hard to come by.

 

Déjà Vu?

 

All this sounds worryingly familiar. In the subprime mortgage crisis of a decade ago, borrowers began to default on loans en masse, with the effects then bouncing around the financial system because these loans had been securitised and sold on to banks, pension funds and other investors.

 

Regulators are understandably worried by such echoes. The Federal Reserve Bank of New York has warned that while car finance arrears have been increasing, lender appetites to offer such borrowing shows no sign of diminishing, with lending volumes continuing to rise. The Bank of England’s Financial Policy Committee, meanwhile, has said it is determined to monitor underwriting standards closely amid fears that consumer borrowing has the potential to leave lenders vulnerable to financial shocks. The Bank’s economists have also warned that the growth of PCPs has added to the potential for car finance defaults to damage financial resilience.

 

The biggest issues that regulators fear is that some sort of macroeconomic shock (an economic slowdown driving unemployment higher or a sharp rise in inflation that increases the cost of living) could trigger much higher default rates. Given that the value of most cars depreciates rapidly compared to other assets, lenders seeking to repossess vehicles in order to mitigate their losses would be likely to fall short – just as repossessions of properties bought with subprime mortgages did not prevent the last crisis.

 

All very worrying……we are not at tipping point but it is definitely a watching brief. The warning signs are there……but will they be respected this time around?

 

Cautious times.