£15 billion: The final bill banks face for mis-selling PPI

FINANCIAL experts have warned the cost of dealing with mis-sold payment protection insurance could hit £15 billion as Lloyds Banking Group yesterday announced it had set aside an additional £1bn to compensate customers for the scandal.

FINANCIAL experts have warned the cost of dealing with mis-sold payment protection insurance could hit £15 billion as Lloyds Banking Group yesterday announced it had set aside an additional £1bn to compensate customers for the scandal.

The Royal Bank of Scotland today set aside an extra £400 million to cover the cost of claims for mis-selling, pushing the total bill for the UK’s four largest banks beyond the £10bn mark.

Hide Ad
Hide Ad

Consumer watchdog Which? warned the money already set aside by banks was likely to be used up within months if the current rate of claims for what it described as the “biggest 
mis-selling scandal of all time” continues.

Yesterday’s announcement by the 40 per cent state-owned Lloyds meant that the bank’s bill for dealing with the scandal has now reached £5.3bn.

RBS’s total exposure to PPI compensation will rise to £1.7bn, according to reports last night, taking the bill for the UK’s biggest four lenders to £10.4bn.

Barclays’ exposure is £2bn, while HSBC is likely to add a further £150 million next week to its total bill estimated to be around the £1.2bn mark.

Factoring in the £731m charge taken last year by Santander UK, the fifth-biggest UK lender, the total aggregate bill so far sits at around £11bn.

Any provision made by building societies and smaller lenders is still to be included in a final figure for PPI mis-selling across the board.

PPI was widely sold by banks in the last decade, and the insurance was supposed to make sure that mortgage and credit card borrowers would be able to repay their loans if they fell ill or lost their jobs.

However, it became apparent that many customers had been mis-sold the insurance because they either did not need it in the first place, or would have been automatically excluded from making a valid claim, typically because they were self-
employed.

Hide Ad
Hide Ad

Under instruction from the financial authorities, the industry is now going back through past sales and alerting customers to the possibility that they can now make a claim for compensation – a process which is generating a huge bill for the UK’s banks.

The British Bankers’ Association confirmed in May last year that it was not going to appeal against a High Court decision that rules relating to the mis-selling of PPI could be applied retrospectively.

High levels of publicity about the scandal, much of which has come from advertising by claims management firms which typically take a quarter of any payout, have also helped to pave the way for rocketing numbers of PPI complaints.

Analysts at JP Morgan believe the financial industry has under-estimated the massive scale of the total PPI compensation bill, which they predict could eventually reach £15bn.

A JP Morgan spokesman said: “With over £34bn in value of PPI products sold since 2001, we think eventual costs could be significantly higher than the current £10bn-£12bn assumed by the market.”

Despite the vast amount of money set aside, consumer groups warned that PPI provisions would run out in a matter of months. The chief executive of Which? Magazine Peter Vicary-Smith said: “The banks have been in denial about the true scale of this scandal.

“Their piecemeal approach to topping up provisions is an inadequate response to what is now the biggest financial mis-selling scandal of all time.

“Consumers are continually being let down by banks. We’re campaigning for big change so that banks work for customers, not bankers and to protect the public from further mis-selling scandals.”

Hide Ad
Hide Ad

The extent of the exposure of Lloyds, which has by far the largest market share of the PPI mis-selling, was revealed in yesterday’s third-quarter results, which revealed that setting aside the cash had pushed the bank to a £144m loss in the three months to 30 September.

Lloyds, which includes the Halifax and Bank of Scotland, was pushed to an annual loss of £3.5bn last year by the PPI scandal, leaving taxpayers wondering when they will get their money back.

From the £5.3bn it has set aside, Lloyds had paid out £3.7bn at the end of September.

Chief executive Antonio Horta-Osorio said the PPI scandal was allowed to happen as banks “lost sight of their core values, had become complacent, non-customer focused and inefficient”. He added: “We could not transform this business without addressing the PPI legacy.”

He said the bank was unlikely to be able to provide a final bill until around the time of its full-year results in February.