The £460 million Lloyds has set aside for future PPI compensation in its half-year figures brings the total set aside for the year to £1.15 billion and raises the overall total to £19.225 billion.
In a statement, the bank said the increase had been driven by ‘a potentially higher total volume of complaints and associated administration costs due to higher reactive complaint volumes received over the past six months and ongoing volatility.’
PPI claims deadline
In February the provision was increased by £600 million after the bank started to receive 11,000 new claims a week following the announcement of the PPI claims deadline of August 29th 2019.
At the time they said: “The remaining provision is consistent with an average of 11,000 complaints per week (previously 9,000) through to the industry deadline of August 2019, in line with the average experience over the last nine months.”
A further £90 million
But when their annual figures were announced in April, Lloyds announced it felt the need to add a further £90 million to the pot as the number of new PPI claims continued to rise.
Now it appears the rate of new claims is rising still further as the bank says the new £460 million provision is to cover 13,000 new claims a week until the 2019 deadline bars all further claims.
Until the announcement, the unused provision was £1.968 billion available to pay future successful claims and the associated administrative costs.
16 million policies sold
A statement in the half-year figures said: “The Group estimates that it has sold approximately 16 million PPI policies since 2000. These include policies that were not mis-sold and those that have been successfully claimed upon.
“Since the commencement of the PPI redress programme in 2011 the Group estimates that it has contacted, settled or provided for approximately 53 per cent of the policies sold since 2000.”
Though the bank believes the new provision will see it through to the claims deadline, it still cannot rule out the possible need to add yet more money in future.
The statement said: “The total amount provided for PPI represents the Group’s best estimate of the likely future cost. However, a number of risks and uncertainties remain including with respect to future volumes. The cost could differ from the Group’s estimates and the assumptions underpinning them and could result in a further provision being required.
“There is also uncertainty around the impact of regulatory changes, FCA media campaign and Claims Management Company and customer activity, and potential additional remediation arising from the continuous improvement of the Group’s operational practices.
“For every additional 1,000 reactive complaints per week above 13,000 on average from July 2018 through to the industry deadline of the end of August 2019, the Group would expect an additional charge of £150 million.”
The biggest uncertainty is the likely effect of a new landmark ruling for the so-called Plevin cases.
In 2014 the Supreme Court ruled that consumers were entitled to compensation if they had not been informed how much commission had been paid on the sale of their policy.
In 2017, when deciding the date of the claims deadline, the Financial Conduct Authority (FCA) added a new rule for PPI mis-selling which said that consumers were entitled to compensation for anything over 50% of the commission paid on a policy sale.
But a new ruling by Manchester County Court earlier this year ignored that figure when the judge ruled Christopher and Joanne Doran were entitled to a refund of the full 76% commission they had paid.
Now the FCA has been forced to review its guidance on Plevin-type cases and has issued a consultation paper to the banking industry asking them to consider how they disclosed the commission payable, not just at the point of sale but also on ‘an on-going basis.’
More than 1.2 million people have already made successful claims under the Plevin rule, with thousands more in the pipeline, but all of those cases, and any new ones, may have to be re-assessed and billions more in compensation paid out.
Analysts believe that if the precedent is upheld, the banking industry could be hit with another wave of claims costing £18 billion.
Lloyds bought the MBNA credit card business from Bank Of America in December 2016 and MBNA have just announced a £100 million increase in its own PPI provision for the first half of this year.
However, there is no additional cost to Lloyds as, at the time of the sale, it was agreed that its future exposure to PPI claims would be capped at £240 million, which has already been provided for.
“Since January 2011 the banking industry has paid out £31.5 billion in PPI compensation – a figure which continues to rise by an average £1/3 billion a month.”