This guest post is for our UK readers, on Payment Protection Insurance claims situation in UK. If you want to know more about PPI, you can check Wikipedia PPI link.
It’s been almost three and a half years since the Payment Protection Insurance court case that kicked off the PPI claims industry. Back then the banks chose not to appeal the High Court decision, thinking that refunds would cost them a few hundred million tops.
Fast forward to Autumn 2014 and the compensation bill has hit £25billion, thanks to another injection of cash from all of the major high street lenders.
Half-years results reveal the cost of PPI
It’s around this time of year that we get to see how much PPI is costing the banks, because they’re announcing their half-year results. On Friday, Royal Bank of Scotland, was the first to show its hand and has increased its PPI claims provisions by £150 million.
HSBC followed suit with an additional £75million being added to their set-aside, analysts predict that Hong Kong-based bank will have to do the same again when their second-half results are announced.
Barclays also revealed how much its putting in the compensation pot, adding £900 million which it claims is mainly down to complaints dating back over 10 years brought by claims management companies.
No doubt the banks could do without these solicitors and claims websites offering free PPI calculator services and ‘hassle free’ claiming. At the last count over two-thirds of PPI complaints were brought by companies, showing people have an overwhelming preference for avoiding the work involved in making a claim.
Profits easily cover cost of PPI claims
Government-backed Lloyds Banking Group as well as TSB and Santander are yet to announce their half-year results, but a contribution to cover their PPI liabilities is expected from all three. But before you shed a tear for the poor shareholders, consider this:
– Barclays, which has set-aside a total of £4.8bn for PPI is forecast to make a pre-tax profit in the first six months of 2014 of at least £1.8 billion.
– Lloyds is expected to make £3.5 billion profit; and
– RBS revealed a pre-tax profit of £2.7 billion, a rise of 93% year-on-year
So they may have put aside £25bn over the last three years but they’ve easily covered that in profits. The boost in the UK economy has helped the banks get back to the good old days and according to the Financial Ombudsman; lenders sold around £50bn worth of PPI, so they’ve only had to pay back half of it up to now.