What’s happened is that the industry got so carried away with the amazing margin and profits from the sale of these policies that they lost site of the consumer.  Eventually, their behavior of overselling the product and denying claims got the attention of government officials, and they took action.  Some of the UK’s largest banks are now staring at a mountain of ppi claims, potentially costing them billions.

The Background

The PPI scandal was, interestingly, not an event that raised to a boil quickly.  Major publications, including the Daily Telegraph were raising flags about the sales practices as far back as 1998.   Complaints and stories circulated in the press for over seven years before any official reaction was released.   Then, in 2005, the Financial Services Authority (FSA, the rough equivalent of the U.S. FINRA) finally took notice.  In January of that year they issued a statement promising a report and recommendation within a year’s time.   Later that year, they released a shot across the bow of bank officials, publishing a report highlighting the questionable selling practices and absense of controls around PPI.

For the next year, the FSA focused mostly on smaller companies that were selling PPI, levying fines and issuing more guidance.   They followed this up in 2007 by spreading their reach to larger companies with substantial fines and reprimands.   This activity of chasing companies continued until it was clear that the “whack a mole” approach was not going to work any longer.  In April of 2011, a landmark ruling was issued against the largest PPI sellers that opened the door for potentially huge financial losses.  The ruling basically created the market for PPI claims, where any consumer that felt they were misled when sold PPI were able to get refunds through a fairly straightforward process.

The ruling was especially vexing for the lenders because it was retroactive.  Initially, the banks assessed their exposure at around 4 billion pounds (equivalent to 6.4 billion USD), but more recently revised the amount they’ve set aside to 10 billion pounds (16.2 billion USD).    To put that into perspective, it’s almost 8 times more than the total amount of fines assessed to banks during the U.S. Mortgage Scandal (Source, SEC).

Interestingly, despite what seem like appropriate sanctions, the general public in the UK doesn’t seem to be impressed.  A popular website called Which? (similar to Consumer Reports) conducted a survey, and found that 71% of consumers feel that UK banks have not yet  learned a lesson from the financial crisis, and this number is up sharply  from a level of 61% back in September 2011.  They also expressed little confidence that the rulings would lead to meaningful change.  Just 26% expressed agreement that it woudl lead to positive improvements in their banking system.

This lack of confidence may be fueled by a feeling that many of the banks are dragging their feet.  The system put into place for consumers to reclaim PPI premiums seems, from the outsidel, to be streamlined.   Statistics show, however, that a large number of consumers are not satisfied with it.   One path of recourse if they are having trouble with the process is to leverage the government-run Ombudsman.   They had a record number of PPI related complaints in 2011, at over 104k complaints filed.   That number rose over 50% in FY 2012 to over 157k.

Another interesting observation is that the situation in the UK was solved by the government, versus by private civil litigation.   Given consumer unrest, if this situation were to happen in the US, it’s possible that a privately run class-action lawsuit might beat out the relatively slow wheels of government agencies.

LESSONS FOR THE U.S.

The chief lesson here is about hubris.   As mentioned earlier, the U.S. Government has historically been hesitant to levy fines or order mass restitution at a level that would put businesses in danger of closing up shop.   They’ve been especially good to banks, despite clear evidence of willful fraud.

That the UK, a country with a much smaller banking industry than our own, has the fortitude to do the right thing, could bring up an interesting comparison.   Especially if another broad, cross-industry, anti-consumer scandal hits here again.   Certainly, public opinion on the handling of the mortgage scandal doesn’t put U.S. politicians in a good light, and corporate and financial reform has been a central issue during this year’s elections.  Companies doing business in the U.S. are well advised to consider the risk they take on when peddling products and services that clearly anti-consumer.

What are we talking about?

A smart business lawyer can help you be prepared for just about any contingency that might arise in your business. From making smart decisions during incorporation, to assistance with zoning and other compliance issues, trademark and copyright assistance, and of course, any type of litigation or business dispute.

The absolute worst time to start looking for a business lawyer is when you absolutely need them, right now, for example, when you are served with a lawsuit.  The right time to secure a business attorney is before an urgent need arises. A skilled lawyer can, many times, head off a lawsuit before it happens, by making sure that:

• You have the right preventative measures in place.  That could be product disclaimers, terms and conditions, established policies, the right level of ( as advised by your attorney) general liability insurance…the list goes on and on.
• Negotiating with potential legal adversaries before a boiling point is reached.  Your attorney may be able to settle a dispute before it turns into a summons.  And, if you’re caught by surprise with a law enforcement officer at your door, wouldn’t it feel better to have your attorney’s business card in your hand?  That certainly beats skimming the yellow pages while talking with the police!

And, having an attorney secured ahead of time is also less expensive.  The cost to establish a relationship and have your attorney on retainer is less than most people think, and it’s no secret that lawyers provide preferential rates to established clients.   If you’ve already been served, your ability to negotiate a fair rate is relatively low.

How To Select the Right Attorney

While the phone book or the internet are certainly easy to use, there’s very little information you can garner about who might be a good fit.   The best way to find a good business attorney is via a referral from friends, family, or neighboring businesses.  Failing that, your state bar association is an excellent choice.  Try to pick at least three attorneys that you can have a conversation with before making your final choice.   Aside from assessing their overall experience with the type  of matters you might face, it’s also important to pick someone that you work well with.  A personality clash will get in the way of your business relationship, and can render an otherwise competent lawyer ineffective.

When you set up the conversations, you might consider using the following structure

Business Overview:  Lead the conversation with quick 5 minute overview of your business, what you do, who your major customers, suppliers, and business partners are.

Your Needs: Then, spend the rest of the time going over your specific needs.  After explaining each need, let the attorney share some of their high-level opinions and ideas.   This approach will help you determine their level of expertise, and it’s also a good way to see what your future working rapport might be:

• Contracts. Share the typical type of contracts that your business enters into, and any challenges you’ve encountered in the past.
• Business organizations. Even if you’ve already established your business specifically as an LLC, C-Corporation, Sole Proprietorship, etc, go over some of the history of why you chose to make the decision.
• Real estate. Go over any property that you own or lease, and any issues you’ve encountered.
• Taxes and licenses. Yes, your accountant covers most of this well, but sharing some of your current practices with the attorney might reveal legal risks, or even opportunities your account may not have been aware of.
• Intellectual property.  This is especially important for organizations in the business of delivering goods that are considered intellectual property (logos, media, copywriting, etc), but it’s also an area that any business should be aware of.  Manufacturers, for example, are well advised to understand the potential implications of an intellectual property dispute with a competitor

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