Counting the Toll of U.K.’s Costliest Banking Scandal

It was the costliest scandal in the history of British banking: the mis-selling of payment protection insurance, or PPI, to tens of millions of borrowers who didn’t want it, didn’t understand what they were buying or whose policies didn’t cover what they thought. Starting in 2006, financial regulators began issuing fines over problems with PPI, and a wave of refund requests crashed over U.K. lenders. The period for filing claims has now ended and banks are ready to turn the page. But shareholders are still paying the price.

PPI was a financial product that covered some or all of a borrower’s loan repayments in the event he or she suffered an accident, sickness, involuntary unemployment or loss of life. It was sold alongside a range of other financial products, such as car loans, credit cards, store credit and mortgages. The premiums were usually billed in monthly installments tacked on to loan payments and were often relatively expensive, ranging from 13% to as much as 56% of the total credit, according to the Citizens Advice Bureau. The policies were sometimes a very poor deal: In one notorious example, insurance sold with a mortgage cost 20,838 pounds (about $26,000) over the term of the loan, but the maximum a customer could claim was just 31,000 pounds.