Lloyds has broken ranks with the rest of the banking industry and will now pay up Lloyds Banking Group has set aside £3.2bn to pay compensation to customers who were mis-sold payment protection insurance (PPI).
The bank is inviting past purchasers of PPI to get in contact and lodge a claim for compensation if they think they were mis-sold the policies.
PPI policies are supposed to cover loan repayments if someone falls ill, has an accident or loses their job.
The huge bill has pushed Lloyds into the red to the tune of £3.47bn.
Lloyds’ decision will put huge pressure on other lenders to follow suit.
The bank made it clear that its move followed the recent High Court defeat for the British Bankers’ Association (BBA).
The BBA had challenged new rules imposed by the Financial Services Authority (FSA) which lay down new rules for selling PPI and which, importantly, require banks and other lenders to review all past sales of the insurance.
“This [PPI provision] will be welcomed by thousands of Lloyds customers, although it will be very expensive for Lloyds ”
Lloyds said: “Since publication of the judgment, the group has been in discussions with the FSA with a view to seeking clarity around the detailed implementation of the policy statement.
“As a result, and given the initial analysis that the group has conducted of compliance with applicable sales standards which is continuing, the group has concluded that there are certain circumstances where customer contact and/or redress will be appropriate.”
The FSA would like Lloyds to contact all past purchasers of PPI, inviting them to lodge a claim if appropriate.
So far, Lloyds has agreed instead to ask its customers to take the initiative.
It has published phone numbers for customers to call and told them they can also submit a complaint via the bank’s website.
“We invite customers to contact us and we will look into it,” said a bank spokeswoman.
Lloyds’ decision on PPI could hardly be more dramatic, or more expensive for the bank.
It has thrown in the towel after years in which the banking industry has denied there was much of a problem.
Banks have fobbed off hundreds of thousands of complaining customers.
Of course, not all PPI policies were mis-sold and some have paid out.
But millions were sold, by credit card and hire purchase providers as well as banks.
The FSA’s initial estimate of an industry-wide bill for mis-selling of a bit over £3bn is now looking like a wild underestimate.
The chances must be that the rest of the banks will finally do as they have been told by the regulators.
Those whose recent claims have been put on hold pending the outcome of the recent High Court case will be processed without any further prompting, she said.
The consumers association Which?, one of many consumer bodies that have campaigned against PPI mis-selling during the past few years, expressed its delight.
“This is great news for the millions of Lloyds customers who have been mis-sold PPI,” said Which? executive director, Richard Lloyd.
“It’s refreshing to see a bank break ranks from its peers and do the right thing by its customers.
“The rest of the UK’s banks must now follow suit and draw a line under the great PPI mis-selling scandal by withdrawing their legal challenge of the FSA and proactively reimbursing the millions of customers who were mis-sold PPI,” he added.
The Lloyds chief executive Antonio Horta-Osorio, who took over at the beginning of March, said he was now abandoning the BBA’s legal challenge.
“We will no longer be participating in the BBA’s judicial review,” he said.
“We do not want to continue a long-standing debate of this with the regulator.”
Last year, the FSA estimated that if the UK’s banks contacted past customers, even those who had never complained, then about 20% would respond, generating a bill for the whole industry of just over £3bn, spread over the next five years.
Lloyds’ figures suggest that if other banks follow its example then the bill for the whole of the UK banking industry could far outstrip these estimates.
Dan Plant, of MoneySavingExpert.com, said: “Lloyds has finally seen sense, yet as millions of PPI policies have been mis-sold over years, the other massive institutions involved must now follow suit, admit that customers were badly treated and give the billions of pounds back.”
The BBA said: “The British Bankers’ Association is presently carefully reviewing the judgment of 20 April and considering whether to make an application to appeal.
“This decision must be made by 10 May 2011. We will make a decision in due course,” it added.
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