PPI Provisions increase – But, are they correct?
Just as the schools break up, the bank results reporting season begins. Reviewing the volume of media comments in respect of the first bank to announce its results, Lloyds Banking Group [LBG], suggests that anyone who thinks the school holiday and emptied offices are a good time to ‘bury bad news’ needs to think again. Although most media commentators correctly rejoiced at LBG’s rise in profits (4% to a statutory profit before tax of £2.5 billion in the first six months of 2017) other commentators focused on the increase in provisions for previous mis-selling and maladministration.
Barclays and LBG will not be alone
The renewed focus is not surprising; the talk amongst financial journalists prior to the results release was that mis-selling provisions at LBG might increase by £300 or £400 million. Very few commentators speculated that the figure could be as high as it was; an additional £1 billion set aside for consumer compensation! As other banks announce the results it is highly likely that the LBG results will not be the only ‘yin-yang’ set of figures as evidenced by the Barclays increase of £700 million. LBG and Barclays will not be the only banks that are shown to be forward thinking responsible organisations making reasonable current operational profits based on new business cultures and activities, but who are still struggling to sort out their previous sales activities; in terms of cost, volume, procedures and customer focus.
What is the full extent of the mis-selling scandal?
Considering these results, it is not surprising that the major banking groups were/are positively behind the Financial Conduct Authority [FCA] proposals to bring the shutters down on future Payment Protection Insurance [PPI] claims. However, sudden additional provisions in these amounts simply show how wrong all the previous provisions were. Such increases just show that the banking world did not and does not know the full extent of the problem. It is not entirely fair to blame the banks for inaccuracies in the previous provisions as they all have to extract data from legacy systems complicated by the fact that many sales were originated by ‘acquired’ businesses. Sometimes it is just that the fact that the regulator is asking the wrong questions, therefore, getting the wrong answer.
FCA unable to confirm PPI gross written premiums!
If the banking community itself cannot accurately predict its own liabilities then it is not surprising that the regulator cannot either. In response to Freedom of Information Act requests by the PFCA and its members, the FCA was unable to confirm the amount of PPI premiums written and confirmed that it did not hold any information providing a breakdown in respect of the amount of mis-sold premiums returned as opposed to the amounts paid to consumers which include account interest and statutory interest.
PPI redress includes ‘Statutory Interest’
The PFCA has consistently advised that only around half of the mis-sold PPI premiums quoted have been repaid. The PFCA’s conclusion is based on the anticipated gross premiums written, the likely percentage of sales being mis-sold and the amount of redress already paid (but taking into account the fact that around half of that amount includes statutory and account interest). It is not surprising then that Martin Lewis of moneysavingexpert.com states, “The deadline is a mistake”. The BBC website shows that banks have set aside nearly £40 billion, but that is still grossly off the mark as it includes statutory and account interest). The FCA proposes a major ‘deadline’ media campaign, but if the extent of the problem is not known and the current progress through the problem is not understood, it is not possible to analyse the success or failure of such a campaign.
FCA decisions likely to be reviewed by a judge
It is looking highly likely that the time bar decision (and other associated decisions) will be reviewed by a judge. It is becoming increasingly apparent that judges are prepared to overturn inappropriate decisions by a government and those whose have been delegated decision making powers by government, stepping in to protect consumers from those decisions; as evidenced by the recent overturn of the fees for tribunal hearings in employment cases.