• Barclays sets aside £1bn to cover compensation
• British Bankers Association drops case
• Payment protection insurance wrongly sold to millions
One of the UK banking industry's most serious mis-selling scandals in decades is drawing to a close, after the banks abandoned their legal challenge against compensating customers who were mis-sold payment protection insurance.
Barclays became the first of the major UK banks to apologise for its role in
the £9bn debacle as the British Bankers Association announced on Monday morning that it is dropping its appeal against tougher controls on how PPI is sold. With the legal battle over, UK banks will now begin in earnest the task of identifying victims and making redress.
The move comes just four days after
Lloyds Banking Group stunned the City by putting £3.2bn aside to cover compensation claims relating to PPI, which was wrongly sold to millions of customers since the late 1990s. This was roughly double the previous estimate.
Barclays, which had a smaller share of the PPI market than Lloyds, is taking a £1bn provision to cover its PPI bill. Chief executive Bob Diamond said Barclays had decided to withdraw from the BBA appeal – as Lloyds did last week – to provide "certainty" for both customers and shareholders.
"We don't always get things right for our customers; when we get them wrong, we apologise and put them right. That's our commitment to our customers, and it applies to the way in which we will deal with PPI complaints," said Diamond.
HSBC announced it has made a $440m (£280m) provision to cover PPI, in a trading statement released on Monday morning – but indicated that this might change.
"A provision of US$440m has been made in the results for the first quarter of 2011 in respect of the estimated liability relating to redress for the possible mis-selling of PPI policies in previous years. There are many factors which affect the estimated liability, including the nature and volume of customer complaints, the extent to which HSBC may be required to take action, and the facts and circumstances of each individual customer's case. Accordingly there is currently a high degree of uncertainty around the ultimate costs of dealing with the matter," the bank said.
Royal Bank of Scotland has welcomed the BBA's move.
"We will update our customers and shareholders as soon as possible on the steps we agree with the FSA, the likely timeframe, and the anticipated costs of redress," said RBS. "This is an important step for all UK banks in our efforts to restore the confidence and trust of consumers."
Analysts believe RBS will need to
set aside around £1bn to cover its own PPI claims. Stephen Hester, chief executive of the company, admitted last week that the bank would need to make a provision in the second quarter of 2011 – the size of which was still being calculated – and indicated that the bank's share of PPI sales was around a third of Lloyds, the market leader.
PPI was meant to help policyholders keep up with their mortgage, credit card or loan repayments if they lost their job or became ill, and was sold alongside these financial products. Many customers, though, bought PPI even though they would not be able to claim, or were even sold it without their knowledge.
The Financial Services Authority has now imposed much tighter controls on how PPI is sold. Borrowers must now be informed that the insurance is an optional extra, and cannot be approached until at least seven days after they have signed up for their loan or credit card.
The banks, through the BBA, had attempted to prevent these rules being applied retrospectively, saying this was a point of principle, but suffered defeat in the high court last month. They had been given until Tuesday to decide whether to seek leave to appeal.
In a statement, the BBA said: "In the interest of providing certainty for their customers, the banks and the BBA have decided that they do not intend to appeal.
"We continue to believe that there are matters of important principle which we will be taking forward in other ways with the authorities."
Graeme Wearden
Jill Treanor
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05-09-2011, 10:12 AM
Banks ditch PPI appeal
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