Lloyds Banking Group sets aside £3.2bn for PPI as rules bite

Shocking estimates of the likely increased costs to the industry of PPI mis-selling arising from changes to the PPI complaints handling and root cause rules look set to be surpassed.

In December, I noted in FSU that the FSA's Consultation Paper 10/21 on “Consumer Complaints: the Ombudsman award limit and changes to complaints-handling rules” said, in just a footnote in the cost / benefit analysis, that the estimated total costs to the industry of consumers who have been mis-sold PPI policies but who would not receive redress without rule changes relating to PPI complaints handling would be between £1bn and £3bn.

Today's announcement by Lloyds Banking Group says it alone has set aside £3.2bn for the "potential costs of customer contact and/or redress, following High Court judgment and discussions with the FSA".  This makes the FSA's estimate for the whole industry look light. The offending Policy Statement and the failed judicial review application by the BBA are costing the industry dear.  Robert Peston (of BBC fame) has suggested the big banks' bill will be in the region of £9bn.  Given that the FSA's estimates in the Policy Statement were based on a 20% uptake rate amongst the proportion of customers contacted as part of redress exercises, it is easy to see how they could be so substantially exceeded.

For the Lloyds Group, which has announced that it will not be part of any appeal against the BBA judgment, this follows on the heels of a £500m provision for the first single firm consumer redress exercise under the new s.404 that HBOS is undertaking in respect of problems with the Halifax standard variable mortgage rate between 2004 and 2007.  The root cause rules are certainly working on Lloyds Banking Group.