Banks may have cost PPI victims an extra £1bn in penalties

The PPI scandal was one of the most egregious chapters in the financial crisis (Getty Images)

Major banks and credit card companies may have cost victims of the payment protection insurance (PPI) scandal an extra £1bn by refusing to refund charges and penalties triggered by the premiums paid for the mis-sold policies.

The failure to include penalty fees and charges in compensation calculations has resulted in dramatic reductions to the amounts some customers received, according to a BBC investigation. Customers with credit cards from Lloyds Banking Group, Barclays, MBNA and Capital One are among those affected.

A senior official from the Financial Ombudsman, which rules on PPI disputes, said there was “no question” that fees and charges triggered by mis-sold PPI premiums had to be refunded to victims.

Principal Ombudsman Caroline Wayman said: “If a fee is the result of the mis-sold PPI it should be given back, and if it’s not included that would be a mistake.

“Any widespread failure to carry out proper calculations would be disappointing.”

In one case, a customer was paid £5,800 of PPI compensation by the credit card company MBNA, which did not include £600 in fees and charges he incurred since taking out his card in 1997.

According to the man’s claims management company, had those fees been correctly included in the calculations his compensation payout would be more than £13,000.

The BBC commissioned PPI expert Cliff D’Arcy to analyse its figures and provide an estimate of the compensation shortfall. He said: “It was only when I got deeper into the numbers that I realised the scale of this problem. It’s because banks were charging very high penalty fees, very high rates of interest on borrowing and some of these claims go back decades. So it just compounds and multiplies to a very big number.”

The PPI scandal became one of the most egregious chapters in the financial crisis when it emerged that policies had been pushed alongside loans and other credit deals with the promise that payments would be covered if borrowers found themselves unable to work. But, in many cases, the fine print meant that customers could never make a claim.

A Lloyds Banking Group spokesperson said: “When a customer lets us know that they may have incurred other costs because of their credit card PPI policy, we will investigate and make an appropriate refund.”

MBNA said: “We are confident that our redress is correct. We have considered our methodology carefully and in detail. Our confidence is reinforced through external independent reviews.”