15Aug

The half-yearly results from the UK’s banks for the first six months of 2014 show that all of the largest institutions have once again increased their provision for mis-sold payment protection insurance (PPI).

The most eye catching piece of news in this area is that the amount set aside by Lloyds Banking Group to pay PPI redress now runs into 11 figures, at some £10.4 billion. This represents an increase of £600 million on the previous figure announced by the group. The Lloyds group includes Bank of Scotland, TSB and Halifax.

Barclays increased its provision by £900 million to £4.85 billion. Royal Bank of Scotland, which includes NatWest, announced an increase of £150 million to £3.25 billion. HSBC announced an increase of £50 million earlier in 2014, taking its total to £2.1 billion. Santander has set aside an additional £65 million, and its compensation reserves now stand at £816 million.

This means that the five largest banking groups have collectively set aside a total of £21.4 billion to pay PPI claims. Some previous estimates suggested that the industry’s final PPI compensation bill could be as much as £40 billion, but it now appears that a figure closer to £20 billion might be more realistic.

Latest figures from the regulator, the Financial Conduct Authority (FCA), show that the 24 firms who are responsible for the most PPI complaints had paid out £15.5 billion in redress up to the end of May 2014. Data from both the FCA and the independent Financial Ombudsman Service (FOS) show that PPI complaint volumes have fallen significantly in the last 12 months or so, but the numbers of complaints being received are still well in excess of those being made about other financial products.

It is now six years or more since most of the mis-sold policies came into force.  However, as the FOS will accept complaints until ‘three years from when the consumer knew, or could reasonably have known, they had cause to complain’, PPI complaints can certainly still be made. Many PPI policyholders did not realise just how unsuitable their insurance was, and in some cases were unaware they even had the cover, so it is considered that these customers will meet the above criterion.

Although it is certainly possible to make a mis-selling claim for PPI today, the FOS has reported that many of the PPI complaints it receives at present concern how the financial firm calculated the compensation payment. The FOS has indicated that it is concerned about firms failing to take account of additional charges incurred by customers as a result of taking out credit card PPI, and that firms are using ‘alternative redress’ to settle PPI claims. Alternative redress, also known as comparative redress, involves the financial firm deciding that whilst single premium PPI was indeed unsuitable, that regular premium PPI would have been suitable instead. Consequently, the firm does not offer the customer a refund of all premiums paid, and instead offers a lower amount of compensation.