PPLie: Mis-sold PPI scandal set to cost Lloyds over £22billion
November 21, 2019
3 min read
What's going on here?
The payment protection insurance (PPI) policy is one of the biggest rip offs in British banking history, costing UK banks as much as £50bn, with Lloyds set to finalise the cost of its mis-sold PPI scandal in the next few weeks.
What does this mean?
PPI, or payment protection insurance policies, were sold by banks with the promise of covering customers’ loan repayments if they became ill or unemployed. After realising the profitability of PPI policies, banks began aggressively pushing this product alongside loans, mortgages and credit cards, but in many cases policy exclusions meant customers couldn’t make a claim.
The fourfold charge sheet against PPIs is as follows:
- They are expensive with premiums often adding 20% to the cost of a loan, and 50% in the worst cases.
- They are ineffective in that they are structured to limit the chances of a payout to customers who are genuinely ill.
- They were mis-sold either without the customer’s knowledge, sold as “essential”, or sold to individuals such as those self-employed who would never be able to make a claim.
- PPI policies are complicated and claimants have faced overstretched delays or complicated claims procedures.
The Financial Conduct Authority’s (FCA) recent campaign in raising awareness of the deadline to submit PPI complaints on 29th August 2019 has led to a surge of PPI complaints. Lloyds Banking Group received around 70,000 pre-complaint information requests relating to PPI each week in the last month leading up to the deadline; that went up to 190,000 in the weeks leading up to the deadline.
The bill for repaying customers and handling claims costs around £53.3bn, which is five times the cost of the London Olympics. Lloyds set aside £22bn for PPI provision but they are expected to add another £1.2bn and £1.8bn for the third quarter. The scandal has led to banks suffering a huge loss of profits. It has already pushed down Lloyd’s pre-tax profits by 7% to £2.9bn. The bank has announced a suspension of its 2019 share buyback programme, leaving £600m of the £1.75bn programme unused. Share buybacks are alternatives to paying dividends to shareholders and helps consolidate ownership by cutting down the number of shares in circulation. The programme was an indication of Lloyd’s confidence in the business in spite of Brexit. While they have said to still be expecting capital growth and a consistent return on equity, the results ultimately depends on their final PPI bill.
Why should law firms care?
Law firms have the opportunity to go after wealthy banks and financial institutions on behalf of clients to tackle the misselling of the PPIs. They will have to establish that a financial company is responsible for how its dealers sell its financial products, and will be investigating directives given to sellers to prioritise PPI finance over other options without taking into account a customer’s individual requirements. The Financial Ombudsman has been involved with helping customers take their claims forward as well.
However, some law firms have been warned by the Solicitors Regulation Authority (SRA) not to charge excessive fees for PPI claims. The SRA had received reports suggesting law firms made claims without identifying clients, getting permission of clients or investigating whether there was a valid claim, and submitted false claims. While only a “tiny minority…fall below the high standards [the SRA] and the public expect of them”, it is imperative for solicitors to act with good faith when dealing with clients.
The scandal has created a mini industry of claims-handling firms, leading to a job boom in jobs linked to processing claims. While the deadline for bringing about PPI complaints has passed, claims management firms are all trying to fill the void and look for further systemic mis-selling.
Report written by Robyn Ma
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