Banks accused of underpaying PPI claims
Customers of Barclays, Capital One, Lloyds Banking Group and MBNA may have been underpaid payment protection insurance (PPI) compensation.
An expert instructed by the BBC said the amount credit card customers could have been shortchanged by could be "somewhere in the region of £1 billion".
The BBC said the shortfall in compensation came about because "although these banks all refunded the premiums on their mis-sold PPI policies plus interest as regulators require, they have been failing correctly to refund additional charges which were triggered by the premiums of the mis-sold PPI policies".
It further explained: "Some of those premiums put people over their borrowing limits, meaning they were then charged an additional fee".
"This failure to include fees and charges in compensation calculations has resulted in dramatic reductions to the amounts some customers have received."
The Financial Conduct Authority said it was in talks with the banks involved about the issue.
Clive Adamson, the FCA's director of supervision, told the BBC: "If there are penalty fees or charges that arise from the mis-sale of the original PPI, then they should be refundable."
Barclays told the BBC that a system it previously used to calculate compensation did not fully piece together information about all the costs a customer may have incurred. It added that affected customers have since been refunded.
Lloyds Banking Group said it investigates whenever a customer informs it that they have incurred other costs because of their PPI policy and makes "an appropriate refund".
In March, the BBC reported that Lloyds Banking Group had been cutting the compensation to PPI claimants to save £60 million after a whistleblower came forward.
This, the broadcaster alleged, was because the bank had been deducting the cost of a cheaper, regular premium policy from the compensation package on the premise the customer could have bought one of them instead.
At the time, the banking group said that only a tiny fraction of the claims it handled were affected.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.