Banks feel the heat as Lloyds sets aside £3.2bn for PPI compensation
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Banks are facing calls to set aside billions of pounds to compensate customers who have been mis-sold payment protection insurance after Lloyds Banking Group made a £3.2bn provision for such claims.
The larger than expected redress pushed Lloyds group £3.47bn into the red for Q1 2011 and is likely to force other banks to follow suit.
On April 20 the High Court ruled in favour of the Financial Services Authority over PPI mis-selling after the British Bankers’ Association launched a judicial review.
Lloyds group says that since the judgment, it has been in discussion with the FSA to seek clarity on the implementation of provisions and has concluded that there are certain circumstances where customer contact and redress is appropriate.
The BBA could appeal the court’s ruling but there are fears that Lloyds group’s decision to set aside £3.2bn for PPI claims has set a precedent and the industry’s bill will exceed the BBA’s estimate of £4.5bn.
Jeff Quilter, strategy director at HML, says: “The move by Lloyds group is potentially accelerating the timescale of this exercise for the industry. It has also revealed a larger financial implication than has been estimated.”
Meanwhile, Citizens Advice, Consumer Focus and Which? have welcomed Lloyds group’s move, calling for other banks to do the same.
Richard Lloyd, executive director at Which?, says: “The rest of the banks must follow suit and draw a line under the great PPI mis-selling scandal by withdrawing their legal challenge against the FSA and reimbursing the millions who were mis-sold PPI.”
The BBA has until this Tuesday to decide if it will appeal.
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