Gladstone Brookes | Could banks be facing another £40 billion bill?

Could banks be facing another £40 billion bill?

Financial experts are speculating that Britain’s banks are on the verge of being hit by another £40 billion bill for mis-selling and manipulation of a number of exchange rates.

The figure is over and above the £26 billion already set aside to compensate successful PPI claimants in what has become one of the country’s biggest ever financial mis-selling scandals.

Plevin

The UK’s financial regulator, the Financial Conduct Authority (FCA), is due to rule in the near future on how the Plevin case should be applied to consumer protection rules.

In a landmark judgement last year the Supreme Court ruled that if as PPI seller failed to disclose that it had received a large commission from the policy provider the sale was unfair under the 1974 Consumer Credit Act and the policy had therefore been mis-sold.

Commission

College lecturer Susan Plevin had borrowed £34,000 from the broker Paragon Personal Finance. She was told that a commission had been paid, but not how much. In fact, 72% of the £5,780 premium she paid was commission and only 28% went to pay for her policy.

The expected ruling will not just apply to the usual loans, mortgages and credit cards. Firms dealing in store cards and auto finance could also be caught up in the new round of claims.

Commentators believe that, overall, the decision could open the way for a new flood of PPI claims which could cost lenders up to £33 billion.

Review

The case has now been included in the FCA’s overall thematic review of the way in which PPI claims and compensation have been handled by Britain’s banks and other lenders. In August last year it ordered lenders to re-open 2.5 million complaints which they suspected had either been unfairly rejected or the claimants had not been paid enough compensation.

They also handed out a record fine of £117 million in June to Lloyds Bank for the mis-handling of PPI complaints. The bank also agreed to review or automatically uphold 1.2 million cases which may have been unfairly rejected or compensated.

Manipulation

Several banks have already been fined for their part in the multi-billion pound manipulation of the world’s foreign exchange market (FOREX), but a recent decision in America could mean they face billions of pounds more in penalties if pension funds and other investors file claims for monies lost.

Barclays, HSBC and Royal Bank Of Scotland (RBS) are among nine banks who have just agreed a £1.3 billion settlement with US investors over the exchange rate rigging claims. But the American law firm which negotiated the settlement said the agreement applied in the US only and other action might be forthcoming in London – the world’s biggest FOREX centre.

Significant loss

Hausfeld London managing partner, Anthony Maton, added: “There is no doubt that anyone who traded FX in or through the London and Asian markets – which transact millions of dollars of business every day – will have suffered a significant loss as a result of the actions of the banks.”

Class actions

The firm’s head, Michael Hausfeld said a claim would be lodged with the UK Competition and Appeal Tribunal under new rules, introduced earlier this year, which make it easier to bring US-style ‘class actions’.

He added: “The London exchanges are almost twice the size of the US market and London procedural rules would enable non UK residents to bring some claims.”

British barrister, David McIlroy, said: “There will be more claims in London because it is a far bigger FOREX market. London settlements could run into tens of billions of pounds.”

“The bank also agreed to review or automatically uphold 1.2 million cases which may have been unfairly rejected or compensated”

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