In April banks lost a judicial review to overturn regulations regarding the mis-selling of payment protection insurance and were forced to re-open thousands of customer claims which meant that banks could face huge compensation bills.
This morning, Lloyds Banking Group announced pre-tax losses in excess of £3.47 billion for the first three months of the year after a profit of £284m before the provision for PPI compensation and other one-off items. The bank’s core business showed growth however as customer loans and deposits rose from £842bn to £847.8bn.
PPI policies are designed to cover a borrower’s debt in the event of illness, unemployment or other situation that may prevent them from earning a salary/wage by which they can service the debt.
Lloyds PPI provision was much bigger than analysts had expected and passes on a £1.1bn charge to the government who owns 41% of the bank.
The decision by Lloyds to settle PPI claims may put pressure on other banks to do the same.
In the first three months of 2011 LBG provided £5.8bn of gross mortgage lending (including remortgages) to UK homeowners and £10.3bn of committed gross lending to UK businesses.
Of committed gross lending to UK businesses, £3.3 bn has been to small and medium enterprises (SMEs). At the end of March 2011, the year-on-year growth in net advances to SMEs was 2% which compares favourably with the negative growth in SME lending across the industry reported in the latest available market statistics from the Bank of England.
The Financial Services Consumer Panel welcomed the decision by Lloyds today to accept the decision of the judge and end the legal action delaying compensation to customers for bad practices in selling PPI.
Adam Phillips, chair of the Consumer Panel, said:“The banks have got to change the way they treat customers. We hope that today’s decision by Lloyds signals a change of approach that will positively distinguish them and Santander, who have taken no part in this legal action, from the other major banks. We re-iterate the challenge to the other banks to do the right thing by their customers and accept the judge’s decision.”
Mike Ransom, managing director of Investor Compensation, added: “It is now crucial that other banks follow suit and do not start to extend appeal activity which will drag out the whole scenario even further. It is time that the banks stop wasting time and finally face up to the fact that they will have to recompense those who have been continually fobbed off until now. Other banks crucially need to reflect the action of Lloyds and draw a line under this whole debacle.”
And Michael Pilgrim, founder and director of Randall and Vickers, said: “These figures are the first accurate indication of just how widespread the mis-selling of PPI policies was.
“For 10 years, consumers have been aggressively sold policies which were expensive, ineffective and, in a lot of cases, downright useless.
“Now the courts have decided to allow consumers to reclaim premiums for mis-sold policies, consumers need to check their statements to see whether they could be entitled to their money back.
“More importantly, they should also take care that they don’t jump from one rip-off to another. A number of claims management companies are charging up-front fees to process these claims, while others hide or are unclear about how much of the compensation they will take as a fee if successful.”
