Gouging the punter ... Banks hit with huge fines and compensation ... Wave of weasel words ... Roger Fitch examines the latest scandals: crook insurance schemes, interest rate hedging scams and LIBOR rigging  

WHEN Hillary Clinton (Juris Doctor, Yale) said in 2008 that on a trip to Bosnia in 1996 her plane was under fire when it landed, was she "misspeaking" as she claimed, or telling porkies?

Likewise, when US Senator and former Connecticut Attorney General, Richard Blumenthal (BA, Harvard; Juris Doctor, Yale), said or intimated on a number of occasions prior to May 2010 that he had served in the military in Vietnam when he hadn't, was he "misspeaking" or simply telling porkies?

On the other hand, George W. Bush (BA, Yale; MBA, Harvard) probably misspoke when he said in 2004:

"They [our enemies] never stop thinking about new ways to harm our country and our people - and neither do we."

Our illustrious leader, Tony Abbott (BEc and LLB, University of Sydney; MA, Oxford) probably misspoke as well, when he said on the campaign trail:

"No one, however smart, however well-educated, however experienced ... is the suppository of all wisdom."

Cigarettes out

However, when Big Tobacco companies were ordered by US Federal Judge Gladys Kessler to publish corrective statements that they had "deliberately deceived the American public about the health effects of smoking", there was no doubt that they had lied.

And what's worse for Altria Group (owner of Philip Morris), Reynolds American (owner of R J Reynolds Tobacco) and Lorillard, is that they will be required to repeat that they had lied to the American people ad nauseum for years to come.

The Washington Post reported on January 11: 

"Under the agreement with the Justice Department, each of the companies must publish full-page ads in the Sunday editions of 35 newspapers and on the newspapers' web sites, as well as air prime-time TV spots on CBS, ABC or NBC five times per week for a year.

The companies also must publish the statements on their web sites and affix them to a certain number of cigarette packs three times per year for two years.

Each corrective ad is to be prefaced by a statement that a federal court has concluded that the defendant tobacco companies 'deliberately deceived the American public'." 

Among the required statements are that smoking kills more people than murder, AIDS, suicide, drugs, car crashes and alcohol combined, and that "secondhand smoke kills over 38,000 Americans a year". 

I suppose that one would have to expect such a shellacking if one has behaved like a Racketeer Influenced and Corrupt Organisation for over 50 years. 

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Tobacco Bob, with tea and sympathy

NOW that the US Supreme Court has discovered a previously unknown right of corporate free speech, the cigarette companies are seeking to appeal these orders, even though they had earlier consented to them. 

The Big Tobacco case was commenced by the DoJ in the Clinton era and was settled by the Republicans in the George W. Bush era.

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WHAT about misselling – what's that all about?

UK insurer, CPPGroup Plc, knows all about it - in its case over credit card and identity theft.

Through its associated banks and credit card companies, seven million consumers were sold policies for £110 per annum. For most customers the policies were completely unnecessary.

One can understand why the banks, including HSBC, Barclays and Royal Bank of Scotland, were keen to push the product to their clients - commissions were up to 80 percent.

After belated intervention by the City regulator, the Financial Conduct Authority, CPP was fined £10.5 million in November 2012 and will pay £65.8 million in compensation and administration costs.  

When the banks and credit card companies stump-up their share of the compensation package to individual consumers, expected to be around £185 each, the total cost of this commercial misdirection is expected to be in the order of £1.8 billion.

It's all explained here and here. 

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CPP, however, pales into insignificance compared with the PPI or Payment Protection Insurance scam. 

PPI is designed to protect borrowers, usually with unsecured consumer loans, in case they can't pay due to accident, sickness or unemployment.

Some who were sold PPI didn't know they had bought it, others were excluded from making a claim by the terms of the policy and others were not paid when they should have been.

Following an investigation by the Financial Services Authority, it released a policy statement on August 10, 2010 to redress the adverse effects of misselling the policies. 

The banks were somewhat peeved by the FSA's policy and mounted a legal challenge, but fortunately for consumers that was dismissed on April 20, 2011. 

Since then UK banks and finance companies have been flooded with hundreds of thousands of claims from consumers seeking compensation.

Although it was initially thought that the banks would be up for about £4.5 billion in compensation, it now appears that the total cost will be about £22 billion with Lloyds, Barclays, Royal Bank of Scotland, HSBC and Santanda being responsible for about £19.6 billion.  

Lloyds alone, recently increased its provisions for the seventh time to just short of £10 billion. 

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Rates protection horrorNEXT comes the Interest Rate Hedging Products scandal.  

In the early 2000s UK banks dreamed up a nice little earner to gouge small business clients.  

Sold as a "no-cost" form of insurance to protect borrowers from adverse movements in interest rates, borrowers found to their horror that when interest rates fell any benefit to them from the hedging they entered into was consumed by charges.  

A futher horror emerged when borrorers sought to withdraw from their toxic agreeements. You guessed it - termination costs were prohibitive.

On June 29, 2012, the Financial Services Authority announced that it had reached agreement with Barclays, HSBC, Lloyds and Royal Bank of Scotland to compensate approximately 28,000 customers to whom they had "missold" interest rate hedging products for over a decade.

Among "poor sales practices" identified by the FSA were "rewards and incentives being a driver of these practices".  Surprise, surprise.

The errant banks have set aside more than £3 billion to compensate customers. As of December 2013, they had paid out only £81 million with RBS looking at more claims (6,926) than its three other competitors combined.

Reuters claimed that the payouts so far add up to more than £17 billion for compensation to customers missold loan insurance. 

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Barclay's Jenkins: a decade to win back public trust

FINALLY, let's visit the LIBOR rigging scandal and the loans made to customers contingent on that rate.

On June 27, 2012, Barclays paid £59.5 million in fines to the Financial Services Authority for its part in LIBOR rigging.

Not to be outdone, on December 19, 2012 the FSA fined UBS a record sum of £160 million for LIBOR rigging.

I suspect that these sums will amount to petty cash compared to the amounts this little misdirection will cost the offending banks when civil claims are determined. 

A couple of test cases are currently winding their way through the UK legal system.

On November 8, 2013, the Court of Appeal in London refused to exclude allegations of LIBOR rigging in two claims brought against Barclays and Deutsche Bank.

Justice of Appeal, Andrew Longmore, told the Court:

"The banks did propose the use of LIBOR and it must be arguable that, at the very least, they were representing that their own participation in the setting of the rate was an honest one.

If the day after the contracts had been made, the banks had told their counterparties that they had been manipulating LIBOR in the past and intended to do so in the future ... the borrower would arguably be sufficiently horrified so as to think he would be entitled to rescind the deal." 

Barclays former boss, (Brash) Bob Diamond, like Rupe and phone hacking, told a House of Commons inquiry that he had no idea that his troops were rigging LIBOR rates although he was convinced that those from other banks were.

Barclays new boss, Antony Jenkins, thinks it might take a decade to win back public trust after the scandals involving misselling payment protection insurance and Libor fixing.

He may well be right on that score.  

How long, and how much, it will take to pay claims from dudded borrowers may be more difficult to predict.

So, what are we talking about here with all this misspeaking and misselling?  

Are these just a series of mistakes, or weasel words for lies and fraud?