Banks are set to see their compensation bills for one of the country's biggest-ever mis-selling scandals soar after the Financial Ombudsman Service said customer complaints about payment protection insurance (PPI) had more than doubled to 11,000 new claims each week in the last three months of 2012.
The Ombudsman, which earlier this month had to hire 1,000 extra staff in order to cope with the deluge of calls about PPI, received 145,546 complaints about the products in just three months between October and December. That is more than the Government-backed service – which steps in when banks and their customers cannot reach an agreement – received in any 12-month period between 2000 and 2010.
Banks have already set aside some £11bn to compensate customers who were mis-sold PPI policies, which were initially designed to protect borrowers who lost jobs or became ill and couldn't keep up loan repayments. Now lenders are expected to have to set aside hundreds of millions of pounds more to repay customers when banking-reporting season kicks off next month.
The latest acceleration in claims to more than 11,000 a week during the last three months of last year, was itself a doubling on the 32,445 complaints which were made between April and June last year, totting up to around 2,500 a week.
Britain's biggest banks have had to pay out the most, with state-backed Lloyds announcing a fourth PPI provision of £1bn in November, taking the amount the bank has spent on the fallout to £5.3bn.
Bailed-out Royal Bank of Scotland added a further £400m to its provision, taking its total to £1.7 bn in total. In October, Barclays conceded it would need to pay out a further £700m on top of the £1bm it had set aside in 2011 and the £300m it paid in the first three months of 2012.
Analysts forecast banks' total pay-out on the PPI mis-selling scandal will eventually breach the £15bn mark.
Earlier this year, lenders started campaigning for the regulator, the Financial Services Authority (FSA), to impose a deadline on claims. The industry's lobby group, the British Bankers' Association, contacted the FSA to discuss a deal that would see banks pay for an advertising campaign telling people how to claim, in exchange for a time limit. The banks warn that the ongoing PPI claims and resultant costs are creating uncertainty for investors.
In total, the Ombudsman has received 604,550 PPI complaints between 2000 and 2012, and it is currently upholding 62 per cent of them in the customer's favour – down from 82 per cent in the year to March 2012.