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Banks' PPI bill could reach £5.1 billion
Lloyds is thought to be the most exposed player in the industry, and in the worst case scenario faces costs of up to £1.53 billion for payment protection insurance compensation claims.
The payment protection insurance (PPI) scandal could cost UK banks more than £5 billion in compensation claims over the next five years, research yesterday revealed.
PPI is supposed to cover the cost of loan repayments in the event the consumer becomes ill or unemployed, but providers have come under fire in recent years after complaints about mis-selling rocketed.
Lloyds Banking Group is thought to be the 'most exposed player' in the industry, and could have to pay as much as £1.5 billion in claims, according to a report by US investment bank Morgan Stanley.
UK banks Barclays, HSBC and Santander meanwhile also face paying out millions in claims.
According to Morgan Stanley the lowest cost the industry faces is £740 million, but the bank expects the total figure to be more like £2.61 billion - or £5.1 billion at worst.
The total bill will depend on the number of claims filed, the amount of claims upheld by the banks and the average claim size - which is expected to be £2,000.
Morgan Stanley however claims the impact of the costs will be 'manageable' and 'not likely to be dramatic'.
The news comes just weeks after it was confirmed by the Competition Commission that banks are to banned from selling PPI to consumers when they take out a loan, and will have wait seven days before they can offer the product to customers.
The Financial Services Authority (FSA) and the British Bankers Association (BBA) meanwhile are currently locked in a dispute over how banks should deal with PPI complaints.
The FSA’s new package of PPI complaint handling measures, which are due to come into effect on 1 December, would force banks to review millions of PPI complaints from the last five years. The BBA has launched a judicial review in protest of the measures and delay compensation payments.
Many banks, such as Lloyds TSB for example, have now stopped offering the insurance product to new customers entirely.
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by Gavin Lumsden on May 22, 2013 at 11:42