Lloyds accused of shortchanging PPI claimants

25 March 2014

Lloyds Banking Group has been cutting the compensation it pays to Payment Protection Insurance (PPI) claimants to save £60 million, the BBC has claimed.

Banks have set aside billions of pounds to deal with the PPI scandal, which saw thousands of consumers mis-sold the insurance alongside mortgages, credit cards, loans, store cards or other credit agreements.

But a BBC investigation claims some consumers who bought a single premium PPI policy they paid for upfront at the start of their policy and then successfully claimed they had been mis-sold have not been adequately refunded.

This, it alleged, was because the bank has 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.

Banks are technically allowed to use this "alternative redress" rule, according to the Financial Conduct Authority's (FCA).

A scandal in a scandal

However, Cliff D'Arcy, who used to work at Lloyds subsidiary HBOS's PPI operation, told the BBC Lloyds had saved more than £60 million over the past year by using the method.

"What's happening here is a taxpayer-sponsored bank is depriving taxpayers of their rightful compensation by using a loophole," he said.

"It's a scandal coming out of a scandal."

The Financial Ombudsman said that while complaints about alternative redress were still only small, it had had seen an increase in the number.

A spokesman added: "If people do feel that they have not got the correct payout from their bank, they should contact the ombudsman, who can sort it out."

Lloyds told the BBC that 11% of its offers made in the fourth quarter of 2013 were made by using alternative redress.

 A spokeswoman for the group said the figures represented only a tiny fraction of the claims they have dealt with.

"The numbers that have been provided to the BBC by the claims management companies, are incorrect and deeply misleading," she said.

"Over 98% of upheld PPI claims have been paid with full redress. For less than 2% of claims, we have used a formula agreed with the FCA to offer comparative redress to customers.

"The FCA handbook is very clear that in these specific circumstances, the provider should give redress that puts the customer in the position they would have been in had the customer taken the regular premium policy."

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