Taxpayer-backed banks Lloyds and RBS said their huge bill for compensating customers flogged useless payment protection insurance was a major contributor to their massive losses announced this week. Lloyds took a £3.2bn hit for PPI compensation while RBS, which owns NatWest, was forced to set aside £850m to repay customers.
There was no detail on how many customers have had their cash repaid but, judging by figures from the City watchdog about compensation payouts, it may be as little as a quarter. The Financial Services Authority said £1.9bn was paid out in compensation last year, including £441m in December, a monthly record.
But this is less than a quarter of the estimated £8bn lenders have set aside for compensation. That suggests banks are dragging their feet about paying out, but it's also a sign that many lenders are seemingly failing to be fair with their customers. In the first place many are not bothering to contact all the people that may have been victims of mis-selling. So they may have set aside the cash, but that doesn't mean they will necessary have to pay it out. That's shabby in the first place. It could almost make you believe that the lenders don't want to repay their badly treated customers.
Next, some lenders have apparently made the process of claiming compensation overcomplicated or lengthy. Lloyds Banking Group, for instance, proudly stated last year that: "We will we provide a full response within 16 weeks of receiving the complaint."
In other words, anyone putting in a claim should expect to wait up to four months before hearing the decision from the bank. The net result of that is many claimants, unsure whether or not they may actually be eligible for a payout, could be tempted to give up, especially when the form filling and red tape takes too long. Are the banks' claim processes deliberately designed to to be so difficult as to put people off? If so, their plan hasn't worked. Instead it has opened the door to the army of claims managers cashing in on the compensation process.
They can help those people who have difficulty with the paperwork, but charge them sky-high fees for the privilege. With typical compensation payouts at around £2,750 and the firms charging 25 per cent of the compensation as a fee, it means they can trouser almost £700 on average. With some payouts being much higher, the fees will correspondingly be more juicy, of course.
When I've mentioned the claims management firms in the past, it has prompted a volley of complaints from those in the industry who consider they offer people a decent service. So let me now quote Richard Lloyd, of Which?, who this week said: "We have found dubious practice by claims management companies, including bombarding people with misleading information about getting PPI compensation."
But it's the banks who deserve our unhappiness over the whole elongated business. Once they had been found guilty they should have speedily put things right rather than using further delaying tactics. Their behaviour since the beginning when they first pushed the dodgy policies onto unwary customers has been appalling.
The longer they delay payouts, the more they punish their victims.
Mind you, it's probably better to drag your feet than not pay your bills altogether. Loans company Norton Finance sold loads of PPI policies and consequently was landed with a £2.2m mis-selling compensation bill.
Has it repaid people it flogged the policies to? No. Instead, earlier this month Insolvency Today magazine reported that Norton Insurance Services and Norton Finance (UK), the two subsidiaries involved in PPI sales, had been declared insolvent.
The directors of Norton Finance Group (not Norton Finance (UK) you understand), were apologetic. They said: "It is with reluctance we have had to close these two subsidiary companies as they traded successfully for 38 years until the regulations surrounding selling of payment protection insurance changed retrospectively last year."
So it seems they blame changes in the law for their woes rather than the fact that they were found guilty of mis-selling the cover. So where does that leave customers of the two now-insolvent firms? The Financial Services Compensation Scheme will be forced to step in.
Once the FSCS formally declares the two Norton Finance Group subsidiaries to be in default, it will deal with claims against the firm and arrange payment for compensation. However, that is likely to take many months, meaning people who used either of the Norton Finance companies will have to wait even longer for their compensation than if they were with one of the major banks.
Also there's a question of who pays the compensation. If the FSCS is forced to stump up for it, it will have to recover the money by increasing the levy it charges the financial services industry. In turn financial firms will be forced to hike charges to cover the increased cost of the levy. Eventually, therefore, normal folk like you and me will end up paying. The list may even include those who were victims of the Norton Finance mis-selling in the first place. And that seems bonkers.
But what about the staff and directors of Norton Finance who worked so hard to turn a profit by selling loans and payment insurance for all those years? Rest assuredthere's good news for them. The two bust companies traded from the same premises as another company called Norton Finance and Mortgages Limited. That company, NFM, for short, has since purchased the business and assets of both, but not the £2.2m PPI debt, of course. The statement from Norton Finance directors reads: "I am pleased to announce that NFM has acquired the businesses and all employee positions will be protected. We look forward to continuing to work with all existing introducers and partners."
I am pleased for the staff. It's never good news to hear of people losing their jobs. And I am pleased for the directors of the firm who can carry on trading with impunity having completely cleared the slate of that troublesome PPI compensation bill. And completely within the law.