Kate Hughes: Bank's fightback against PPI claims seems doomed

Lloyds says some cases are dubious, but many genuine complaints have not even been made

Well, it was only a matter of time. With the relentless beating over the epic extent of payment protection insurance (PPI) mis-selling, set to cost UK banks around £12bn in compensation, one bank seems to have finally cracked.

Setting aside a further £1bn to bring its total PPI contingency so far to £5.3bn, and with uncertainty about how much further the bill could rise, Lloyds Banking Group has decided that half the claims for PPI are "duplicates or dubious". It's both offensive and questionable, not least because the Financial Ombudsman Service (FOS) upheld a massive 98 per cent of PPI claims cases brought against Lloyds TSB in the first half of this year, the highest in the retail banking sector.

In fact, the Lloyds comments come just two days after Natalie Ceeney, the chief executive and chief ombudsman for the FOS, told the Treasury Select Committee that too many claims were being thrown out by the banks and that not investigating claims properly in the first place has played right into the claims management companies' hands.

"In a quarter of cases where banks said customers didn't have PPI, they did. The banks were not doing their job properly," added Ms Ceeney.

Only a few weeks ago, she'd warned that scaremongering over a growing compensation culture was totally unfounded and, across the financial services industry, the ombudsman was actually upholding more cases.

Nevertheless, Lloyds' chief executive, António Horta-Osório, has called on the FOS to force the claims management companies that have popped up in the wake of the scandal to pay the costs of the claims.

But, er, hang on a minute. If the ombudsman finds in the customer's favour, the bank pays the costs, and if it finds in the bank's favour, then the bank also pays. But if the FOS throws the case out, say if there wasn't a PPI policy in the first place, there are no case fees to pay anyway.

"All invalid claims waste time and costs which we could be spending on genuine customer concerns. Administrative costs must be paid regardless of who the claim is upheld in favour of," says a Lloyds Banking Group spokesman in its defence. "There is currently no downside for a claims management company to refer each unsuccessful claim to the FOS, which in reality clog up the system. That is why we are asking the FOS to consider ensuring these companies do not simply get a 'no lose' option from appealing any claim, but instead shoulder the cost of submitting erroneous claims."

Which would be fair enough, if the FOS hadn't said that erroneous claims only account for 3.5 per cent of all the claims they consider.

Meanwhile, of course, claims management companies have come out fighting. "Once again at results time we see chief executives of our major banks looking to deflect blame for their spiralling PPI provisions on the claims management industry: when the truth is that they have no one to blame but themselves," says Ryan Horne, managing director of the claims management firm iSmart.

"They should stop this spurious nonsense and take responsibility for the billions they have taken from consumers whose only mistake was to trust their bank.

This corporate mud-slinging is all very well, but, inevitably, it's the consumer that loses most. To date, just three million PPI claims have been made. It sounds a lot, but represents just one in every 10 PPI policies sold, so the number of people still sitting on a valid claim could be massive.

And for those who do decide to claim and use a claims management company, the average cut is 25 per cent of the award. But claiming really isn't that hard and numerous organisations such as Citizens Advice and Which? offer help. Chances are that if you've fallen victim to a dodgy PPI policy, you'll want to keep every penny.

Oh, and incidentally, RBS also announced that it would be setting aside a further £400m to cover PPI claims this week, but sensibly didn't say much else.