Bank’s Enormous Reserves for PPI Mis-selling

Lloyds PPI compensation reserve tops £11 billion, and Barclays provision reaches £5 billion

In late October 2014, Lloyds Banking Group was forced to increase its provision for mis-sold payment protection insurance (PPI) to more than £11 billion, while Barclays Bank’s provision passed the £5 million mark.

Lloyds – which includes TSB, Bank of Scotland and Halifax – increased its compensation reserve by £900 million to £11.3 billion. Analysts from Citigroup have predicted that it will eventually need to allocate a further £1 billion, and chairman George Culmer said he had not ruled out further increases. The group has reported that its PPI complaints increased slightly in the third quarter of 2014 when compared to the previous three months, bucking a recent trend. It also announced plans to cut 9,000 jobs and close 200 branches.

Barclays set aside another £170 million, having announced a £900 million increase as recently as July, and these increases now take the bank’s total PPI bill to £5.02 billion. Barclays also announced that it had set aside £500 million to cover potential fines resulting from rigging of the foreign exchange markets.

Around the same time, Royal Bank of Scotland (RBS), which includes NatWest, increased its PPI provision by £100 million to £3.3 billion. RBS has also allocated £400 million for foreign exchange fines.

HSBC’s provision was increased by £353,000 in the latest round of increases, and their total stands at £2.46 billion. Santander’s provision is £900 million, as of early November 2014, meaning that the five largest banking groups have collectively set aside almost £23 billion to cover PPI claims.

These figures show that, although overall PPI complaint volumes have fallen in recent months, the firms that sold PPI are still expecting to have to settle many more claims. The Financial Ombudsman Service (FOS) received 56,869 new PPI complaints in the period from April to June 2014, and while this figure rose fractionally to 57,094 between July and September, the final figure for the financial year is set to be well below the 399,939 complaints made in the 12 months to March 2014.

Latest data from the regulator, the Financial Conduct Authority (FCA), shows that 1,236,899 PPI complaints were made in the first half of 2014, a fall of 11% when compared to the second half of 2013. These figures are based on returns from firms who receive 500 or more complaints in a six month period. 24 firms are said to be responsible for 96% of the PPI complaints.

According to FCA figures, the amount of PPI compensation paid by these 24 firms in August 2014 (the most recent month for which figures are available) was £312.8 million. This amount is more than 10% lower than for any other month in 2014, and is also the lowest monthly figure since September 2011.

The FOS will still consider PPI complaints, even though it is now six years or more since most of these policies were sold. It will look at a complaint if it is ‘three years from when the consumer knew, or could reasonably have known, they had cause to complain’. So PPI complaints can still be made, as many PPI policyholders did not realise just how unsuitable their insurance was, and in some cases were unaware they even had the cover. However, the FOS has reported that many of the PPI complaints it receives at present concern how the financial firm calculated its redress offer, rather than whether the plan was suitable.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.