The UK’s largest banks are closer to drawing a line under the £30bn payment protection insurance mis-selling debacle with a final round of compensation and new restrictions on claims management companies in sight.
The Ministry of Justice is proposing to cap the fees charged by claims management companies for winning PPI and other compensation cases, fees that can be as high as 40 per cent of the redress awarded to consumers.
Ministers have proposed a package of measures, including that overall charges for claims worth more than £2,000 are capped at £300 — almost half the typical £750 charged at present. Upfront fees for claims before any work is carried out should also be banned, along with charges for fictitious claims.
Claims firms have taken some £3.5bn in charges since 2011. The ministry said there was “widespread concern” that many fuel speculative claims through nuisance calls and aggressive marketing.
The short eight-week MoJ consultation comes as a boost to banks that are preparing to earmark billions of pounds more for PPI in their annual results next week, in one of the biggest rounds of provisioning to date.
Lloyds Banking Group, which sold the most PPI as the UK’s largest lender, is expected by analysts to set aside about £2bn — taking its total bill to almost £16bn. Royal Bank of Scotland and Santander UK have already unveiled further provisions of £500m and £450m respectively.
The latest compensation round could represent the last provisioning exercise needed by banks, after the regulator outlined a potential end-date for consumer PPI claims.
The Financial Conduct Authority proposed last year that a two-year deadline on consumer claims is imposed from the date these rules are imposed — which is expected this spring.
Ross McEwan, chief executive of RBS, said in January when the bank set aside £500m: “On current modelling and assumptions we now believe that we have sufficient provisions to cover claims through to the proposed deadline date of Q1 2018.”
Some banks are keen for a shorter deadline, believing it would galvanise consumers into acting, ending the saga sooner and providing greater certainty to shareholders, according to people familiar with the situation.
But the FCA deadline and a £42m awareness campaign required by the watchdog could help to spur activity among claims management groups before the fee cap potentially comes into force in the summer.
Nick Baxter, of the Professional Financial Claims Association, said at the end of last year there were at least £10bn-£15bn worth of claims to come. Regulatory insiders said at the time this figure was likely to be less than £10bn.
PPI was sold by banks for about two decades beginning in the early 1990s and marketed as a financial safety net for people who lost their jobs or became too sick to work.
However, many policies were mis-sold to customers who did not need them, did not realise they were optional or did not have significant exclusions explained by bank staff.
A spokesman for the British Bankers’ Association said the justice ministry’s move should “prevent claims companies from clogging up the system to the detriment of genuine complaints”.
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