Lloyds may pay out £3 billion over PPI claims

Lloyds Banking Group admitted it was facing a bill of more than £3 billion today after conceding defeat in its legal battle over the mis-selling of controversial payment protection insurance (PPI).

The taxpayer-backed bank will now begin the process of compensating thousands of customers, having previously put any redress on hold while the banking industry thrashed out the issue in the courts.



In a shock move, it set aside up to £3.2 billion to cover the cost of compensating people mis-sold the policies after deciding to withdraw from any further legal action on the issue.



The scale of the provision surprised the City and caused its shares to slump 9% after the banking giant recorded a loss of £3.47 billion for the first three months of the year, compared with a £721 million profit last year.



The huge amount set aside also suggests that the final PPI compensation bill for the whole industry could be far higher than the £4.5 billion that was originally estimated by the Financial Services Authority, with speculation that between £7 billion and £8 billion could eventually be paid out.



The move comes after the High Court ruled last month against the British Bankers' Association, which was acting on behalf of the banking industry, and said new FSA rules on mis-selling PPI could be applied retrospectively.



The BBA still has until next Tuesday to decide if it wants to appeal against the ruling, while other banks have not yet said whether they plan to follow Lloyds' lead and pay out compensation.



Lloyds, in which taxpayers hold a 41% stake, said today that it had decided to withdraw from any action the BBA may take, in order to provide certainty for its customers.



It is thought that its new chief executive Antonio Horta-Osorio, who took over in March, is keen to draw a line under the saga as he clears the decks ahead of the publication of his strategy update next month.



The group, which sold the policies under its Lloyds TSB, Halifax and Bank of Scotland brands, said people who had already made a complaint did not need to do anything.



But other customers who think they may have been mis-sold one of the policies should get in touch either by telephone or through a dedicated area on its website.



The group said it did not have any plans to proactively contact customers who had bought a PPI policy and alert them to the fact that they may be eligible for compensation, as the FSA has called for.



Lloyds' decision was welcomed by consumer groups, which called on other banks to follow its lead and pay compensation to their customers.



Dan Plant, web editor of MoneySavingExpert.com, which has long campaigned on the issue, said: "This is a massive victory and vindication of what consumers, and now the court, have been yelling loudly.



"Lloyds has finally seen sense, yet as millions of PPI policies have been mis-sold over years, the other massive institutions involved must now follow suit, admit that customers were badly treated, and give the billions of pounds back."









Richard Lloyd, executive director of Which?, said: "This is great news for the millions of Lloyds customers who have been mis-sold PPI. It's refreshing to see a bank break ranks from its peers and do the right thing by its customers.



"The rest of the UK's banks must now follow suit and draw a line under the great PPI mis-selling scandal by withdrawing their legal challenge of the FSA and proactively reimbursing the millions of customers who were mis-sold PPI."



News of the compensation overshadowed the rest of Lloyds' first-quarter results, which showed that bad debt losses at the bank had increased to £2.6 billion, up from £2.4 billion in the same period last year, as a result of the Irish debt crisis.



Underlying income was also down, dipping to £5.2 billion from £5.9 billion, as higher funding costs hit margins.



Stripping out the PPI provision, the lender made a £284 million pre-tax profit in the first quarter, compared to a profit of £1.1 billion the previous year.



Customers who think they were mis-sold a PPI policy by Lloyds Banking Group should contact it on the following numbers, depending on which brand sold them the policy: Lloyds TSB 08453 005599, Halifax 08457 253519 and Bank of Scotland 08457 253519.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?