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Lloyds drops PPI challenge and sets aside £3.2bn

Lloyds Banking Group has withdrawn its support for the British Bankers’ Association’s judicial review of payment protection insurance complaint-handling measures and set aside £3.2bn to compensate missold customers.

The £3.2bn PPI provision, which includes administration expenses, caused the bank to report a loss of £3.5bn for the first three months of the year, compared with a £721m profit for the same period in 2010.

The judicial review launched by the BBA in October stems from a policy statement published by the FSA in August setting out a package of measures for firms to implement when dealing with PPI complaints.

The regulator estimated the cost to firms of complying with the measures could be up to £4.5bn and firms were told to implement the measures by December 1, 2010. But the BBA challenged the FSA’s policy statement, as well as guidance published by the Financial Ombudsman Service on its website, saying the measures were based on principles that are not actionable in law. The High Court heard the case in January and ruled in favour of the FSA and the FOS in April.

Lloyds’ shock decision to set aside such a significant redress sum for PPI customers while withdrawing its support for the judicial review weakens the BBA’s appeal, which must be lodged by May 10.

A Lloyds spokesman says: “We will no longer be participating in the BBA’s judicial review. We believe this draws a line under the issue. We have always said we wanted to provide certainty for our customers. Drawing a line under this issue does exactly that and is also in the interests of the long-term stability of our business.”

Lloyds accounted for more than a fifth of PPI-related complaints during the second half of last year – more than any other firm. FSA complaint data covering July 1 to December 31, 2010 shows that Lloyds’ subsidiaries Lloyds TSB bank, Black Horse and Bank of Scotland accounted for 148,300 general insurance and pure protection complaints, which includes PPI complaints. When the BBA announced its judicial review, Lloyds stopped processing PPI complaints despite warnings from the FSA not to do so.

Royal Bank of Scotland, which has a significant PPI market share, said last week it is unable to estimate its PPI liability, given the uncertainties over the judicial review, but added that any provision “could prove to be material.”

PPI claim management firm Randall and Vickers founder and director Michael Pilgrim says: “The Lloyds’ provision is the first accurate indication of just how widespread the misselling 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.”

MoneySavingExpert.com web editor Dan Plant says: “This is a massive victory and vindication of what consumers, and now the High Court, have been yelling loudly.
Lloyds has finally seen sense. As millions of PPI policies have been missold over years, the other massive institutions involved must now follow suit, admit that customers were badly treated and give the billions of pounds back.

“This is damning evidence that the illegitimate hold placed on claims must stop immediately and hopefully the FSA will take strong action to make this happen.”
Consumer Focus financial services expert Oliver Morgans says the PPI saga represents misselling on an epic sale.

He says: “Refunding this money will be a massive administration task. Consumers will want to see all banks hold their hands up and answer questions around how they will be repaid and how quickly it will happen.”

Financial Services Consumer Panel chairman Adam Phillips says: “We hope this decision by Lloyds signals a change of approach that will positively distinguish it and Santander, which has taken no part in this legal action, from the other major banks. We reiterate the challenge to the other banks to do the right thing by customers and accept the judge’s decision.”

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Comments

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  1. anthony brennan 18th May 2011 at 6:49 am

    It should be noted that Judicial review was not about PPI claims. The dispute was about a set of best practises that the FSA introduced in December 2010 and whether they could be applied retrospectively. The instructions from the FSA were that banks should justify why they had sold PPI and if they could not created the obligation to inform their customer of a “potential claim”.

    For the customer to recover this money they still need to establish a basis of claim ie on what legal grounds they believe they should receive their money back, they need to establish the type of claim ie termination or rescission of the PPI contract and quantify their claim.

    http://www.blog.bank-charges-recovery.co.uk/

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