Another bank pre-result announcement (we have to wait another 10 days for the full detail) and yet another hike in the provision for Payment Protection Insurance [PPI] mis-selling! This time it’s the turn of Lloyds Banking Group [LBG] to up their provision. The size of the increase is another, staggering, £1.8bn, bringing the total to nearly £10bn. This comes on top of an earlier announcement from the Royal Bank of Scotland [RBS] that their provision would increase by £465 million to £3.1 billion. The amount set aside for all banks is now approaching £20bn and the increase announced by LBG represents such a big jump in its provision, it appears that there has been a genuine attempt by them to set its provision at an appropriate figure. Some commentators anticipate the overall figure will top out well in excess of £25bn!
Mis-understanding the current position
Although banks may be starting to fully assess their liabilities others involved in the process are still relying on, and basing decisions on, a mis-understanding of the current position. For example, the Financial Ombudsman Service [FOS] most recent annual plan and budget consultation document assesses its 2014/2015 income needs, on an assumption that there will be a 50% reduction in the number of cases it receives (a reduction from 6,000 per week to 3,000 per week).
FOS “Putting PPI behind us” a little premature and optimistic!
Members of the Professional Financial Claims Association [PFCA] are still being contacted by record numbers of clients daily and the trend is not reducing! Obviously, Claims Management Companies [CMCs] are at the start of the complaint process and FOS only get involved where the complaint and product provider cannot reach an agreement, but if the current rejection ratios stay as they are FOS will see not see the anticipated reduction they expect, or hope, to see. They may not see the full effect of today’s complainants for a number of months, but one thing seems clear FOS will see an increase at some point towards the middle of this year. On the current evidence, the ambitious comment in the FOS January/February 2014 Ombudsman News, “I am pleased to say, though, that over the next year or so the prospect of putting PPI behind us will get closer.” seems more than a little premature and optimistic.
Administration fee was really PPI?
On the basis that banks know, or should know, exactly which of their customers have PPI and given that those who regulate banks expect banks to treat customer fairly many commentators are surprised that new cases are still coming to light. “How can this be?” they say, given all the publicity surrounding financial mis-selling and in particular PPI mis-selling. The bottom line is some people are only just finding out that they had PPI linked to a financial debt. Only the other day I was told by a senior partner in a national accounting firm that he was always convinced that he had never been sold PPI. That was until he switched from paper monthly statements to electronic statements and the name of the monthly overdraft administration fee changed to include a PPI fee. So it is probably not surprising that banks like LBG still have to part with sizable chunks of the provisions – in the case of LBG that’s around £2.8bn to repay. The most recent Financial Conduct Authority [FCA] PPI payout update shows £13.3bn. So if the commentators who predict a final bill of over £25bn are right – we are only just half way through this problem. The question that regulators have not been able to, or are unwilling to answer is will the missing/hidden billions ever come to light?