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The announcement made by the FCA this morning that claimants of mis-sold PPI will have until August 2019 to bring forward their cases could have both bullish and bearish connotations for UK banks. The PPI scandal is the largest of its kind in UK history and aside from stemming a multitude of annoying television adverts and incessant cold calls, it has resulted in UK banks setting aside more than £30 billion in provisions to cover potential claims as well as multiple fines for mishandling complaints from claimants.
Lloyds in particular, as the holder of the largest mortgage book in the UK, could see a significant increase in the amount of claimants coming forward. The bank was assumed to have dealt with the majority of its claims already at a cost of £17 billion (roughly half of the overall hit to the industry), as Q4 results saw no additional provisions to deal with claims being put aside for the first time in years.
Furthermore, the announcement that consumers will be able to raise claims for refunds on commission paid on PPI even if they have had their cases dismissed – under the so-called ‘Plevin rule’ – could see the need for further sums of money to be set aside for compensation. The FCA has stated that any commission charge totaling more than 50% of the PPI provision initially sold can rightfully be claimed back, as was the case in a landmark Supreme Court case in November 2014. These fresh claims of excessive commission charges will be able to brought forward once the deadline for PPI claims has been reached.
Yet this also marks a line in the sand for UK retail banks, after results have continually been blighted by the constant need for increasing provisions to cover the cost of the debacle. With the sector having already paid out an estimated £26 billion since 2011, the idea of an absolute end point for the saga could see a collective sigh of relief from executives – the nightmare finally coming to an end.
The only thing left to be seen is whether we see a significant amount of PPI claimants coming out of the woodwork, having put off investing the time and effort into making a claim thus far, and whether the commission payments unknowingly made by consumers happened on a similar scale to the mis-selling of PPI in the first place.
Henry Croft, Research Analyst, 2 March
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