The U.K.’s Biggest Financial Scandal Bites Its Biggest Bank – Again

As with most banking scandals these days, taxpayers have been left holding much of the tab.

By Frances Coppola and cross-posted from Forbes.

To the surprise of markets and the chagrin of shareholders, the U.K.’s largest lender, Lloyds Banking Group, has reported disappointing profits for the second quarter of 2019. And no, it’s not because of Boris Johnson’s antics or the prospect of no-deal Brexit. It’s the final flourish of a much older issue – the U.K.’s long-running PPI scandal. Lloyds has had to take an additional provision of £550m ($670m) to cover a flurry of new PPI claims. This reduced its half-year profit to a paltry £2.2bn ($2.7bn). The share price dropped 5% on the news.

Mis-selling of payment protection insurance (PPI) is by far the U.K.’s biggest financial scandal. The Financial Conduct Authority (FCA) says thatsince January 2011, British banks and financial institutions have paid out £37.5bn ($45.73bn)in compensation to customers who were wrongly sold PPI insurance. Lloyds Banking Group alone accounts for more than half of this total.

The origins of the scandal date back to the 1990s, when financial institutions in the U.K. started selling PPI on lending products including mortgages, car loans and credit cards. PPI was meant to cover loan interest and repayments if the customer became unable to pay, for example due to illness or unemployment. As it was highly profitable for lenders and insurance companies, it was, unsurprisingly, heavily promoted. By 2005, there were an estimated 20 million PPI contracts in existence with annual gross premiums of over £5bn ($6.1bn).

PPI was expensive: premiums could raise the cost of a loan by up to 50%. And it mostly didn’t work. In 2005, the U.K.’s Citizens’ Advice Bureau (CAB) complained that there were so many exclusion clauses in the contracts and administrative barriers to claiming that many people couldn’t make successful claims. Furthermore, the CAB reported, people were being sold policies that they did not need or were unsuitable for them

Continue reading the article

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s