PPI costs increase for Lloyds and Barclays

| November 1, 2012
PPI costs increase for Lloyds and Barclays

Lloyds Banking Group has set aside a further £1 billion to cover compensation costs for customers who were mis-sold Payment Protection Insurance (PPI).

Yesterday, Barclays revealed £700m of PPI costs in the 2012 third quarter increasing its total provision to £2bn.

Lloyds Banking Group, which has made the largest PPI provision out of all the UK retail banks at £5.3bn, recorded a £144m third-quarter pre-tax loss compared with a £607m loss in the 2011 third quarter.

Lloyds is calling for the Financial Ombudsman Service to charge claims management companies a fee of £850 for each bogus PPI claim they submit.

It believes that half of the claims submitted by claims management companies on behalf of customers are without foundation.

However, this view is not shared by chief executive of The Financial Ombudsman Service Natalie Ceeney.

Giving evidence to a Treasury select committee she said: “We hear all the banks talking about fraudulent cases now, which is typically because they believe the customer never had PPI.

“When those cases come to us we find that in about a quarter of those cases the customer did have PPI but the bank has not done a proper job of checking.

“Given so much PPI was sold assumptively – in other words a customer took out a loan, PPI was added and they were not told about the product – I do not think it is fraudulent for the customer to ask if they had PPI.”

Excluding PPI compensation provision and other items Lloyds recorded underlying pre-tax profit of £840m in the third quarter, compared with £419m in the 2011 same period.

The bank is ahead of schedule with a cost cutting strategy introduced by Chief Executive Antonio Horta-Osorio, and expects to reduce costs to £10 billion in 2012, down £1 billion from 2010.

Yesterday, Barclays reported a third-quarter loss of £47m compared with a profit in the same period last year of £2.4bn and a second quarter profit of £1.2bn.

The fall in profit was attributed to a £1.1 billion charge against the value of its own debt as well as the further £700m set aside for PPI compensation.

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