by Mark Johnston
Payment protection insurance (PPI) was routinely mis-sold to borrowers as a safety net in case they lost their jobs or became too ill to work.
One of the worst mis-selling scandals to hit the UK has escalated, forcing many major banks to add hundreds of millions of pounds to their compensation bills for mis-selling payment protection insurance.
The Financial Service Authority (FSA) recently revealed that the total compensation paid to ‘victims’ of payment protection insurance (PPI) mis-selling by all the banks hit £3 billion for the 14 month from January 2011.
However, it has been predicted that the total redress figure could reach £9 billion.
Lloyds, the taxpayer backed bank, has taken an additional £375 million hit to cover payment protection insurance claims. The bank has now therefore set aside nearly £3.8 billion to deal with this compensation.
Although some financial experts have questioned these figures as they suggest that if Lloyds alone has had to pay in excess of £3 billion, it would actually mean that every man and woman in the country with a payment protection insurance policy would have received £650.
A spokesperson for Lloyds stated that it only has £12.9 billion of treasury guaranteed loans left to repay, which they say is down 45% from the £23.5 billion at the end of 2011 and down 77% from the year before.
Antonio Horta-Osorio, chief executive of Lloyds recently said “our share of provisions for PPI is bigger than our share of the retail market. What happened was unacceptable; we sold this product for too long and with too much intensity”.
Recently Barclays confirmed they too have been forced to set aside an extra £300 billion, adding to its initial £1 billion provision set aside to make amends to borrowers.
Clydesdale and Yorkshire bank has also revealed that they have been forced to more than double their provisions for claims. They have set aside an extra £120 million to compensate customers who were mis-sold policies.
The HSBC has said it has made a £290 million provision against payment protection claims, therefore taking their total amount set aside to pay out compensation to £745 million.
Lastly the Royal Bank of Scotland is also expected to ratchet up its original £950 million compensation estimate.
All these banks appear to have seen a spike in compensation claims since the beginning of the year, despite analysts believing the sum would be revised down this year.
It therefore seems that the UK’s largest banks have now set aside a total of around £735 billion and this figure is likely to rise.
However, despite all these increases many experts still believe that on the whole payment protection insurance mis-selling has been blown out of all proportion. They believe that there was ‘some’ mis-selling but not routinely and these policies, particularly for mortgages were good value. It was only the personal loan policies that were too expensive and not targeted fairly.
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