Some debt purchasers could see their businesses crippled if agreement is not reached on how the mis-sold Payment Protection Plan (PPI) tranches of debt portfolios are resolved.Leigh Berkley of the Debt Buyers and Sellers Group (DBSG) is warning that in extreme cases some firms could close as a result and is calling for a reform of the way banks buy back any mis-sold PPI portion of debts from debt buyers.
According to Berkley the commonly adopted system of buy back has worked while the volume of PPI complaints has remained low, but is becoming unsustainable.
In total there have been around 200,000 complaints in relation to PPI made to the Financial Ombudsman Service (FOS). Half of those have been over the last financial year, but the rate of complaints has rocketed to around 5,000 per a week.
“I think for some purchasers this could be very serious financially and could actually bring them down,” he said.
One problem is that the industry has no idea what portion of the debt bought is PPI.
“Even if it is in the bank’s front-end systems it does not get passed back into collections and recoveries,” said Berkley.
“For the seller to review these accounts and buy them back in whole or just the PPI element – that would be a terrible financial result for the purchaser as volumes of PPI complaints increase.”
The DBSG is now putting together a working party of buyers and sellers to develop a checklist of favoured options for PPI repayment that it aims to implement within three to six months in conjunction with the FOS, Office of Fair Trading and British Bankers’ Association.
“We have to ensure we are doing the right thing as an industry but also, more importantly, so that those who have acted in good faith purchasing these portfolios are not damaged by this as it is not the purchasers who have mis-sold the PPI.”
The current preferred option for repayment is for the purchaser to be given the cash for PPI repayment.
“That would put the consumer in the right position and mean the bank has paid the PPI.
“It would also mean that whatever the purchaser was projecting on that account they would have 100% payment on that element,” concluded Berkley.