The former head of Britain’s biggest retail bank said the majority of insurance policies taken out on loans and mortgages were not mis-sold, blaming false claims for the rising bill for banks paying compensation.
Eric Daniels, chief executive of Lloyds Banking Group between 2003 and 2011, said banks had paid out on some claims from customers who did not even have payment protection insurance (PPI) because they could not cope with the number of complaints.
“A fair number of bogus claims were paid out because the number of claims were so overwhelming that banks could not analyse whether or not they were genuine or not,” he told the Parliamentary Commission on Banking Standards yesterday.
Banks are facing a bill of more than £12 billion to compensate customers wrongly sold policies meant to protect borrowers who lost jobs or became ill, and industry sources have said they expect the number to double.
Mr Daniels said he believed around half of PPI claims were “completely illegitimate”.
Commission member Andrew Turnbull, a former head of the civil service, had countered that fraudulent claims were “irrelevant” in the context of the wider mis-selling.
PPI is the most complained-about financial product ever in the UK, with the financial ombudsman service having received more than half a million cases. However, Mr Daniels told the panel that the product solved a “fundamental customer need” and that PPI was a “very competitive product.”
“I believe that customers did know what they were buying. They got good value. In those cases where they were mis-sold products, that clearly is wrong, but that’s not the majority in my view,” he said.
Lloyds, which has 6,000 staff dealing with claims, said in November that it had set aside another £1bn to compensate customers mis-sold PPI.