The payment protection insurance scandal could end up costing banks more than £53 billion, as firms warn of mounting bills from last-minute claims.
The deadline for customers to claim PPI compensation expired Sunday, yet a number of major banks have warned they face continued costs to deal with the late surge.
CYBG, which owns Clydesdale, Yorkshire and Virgin Money, warned of a potential £450m bill following an “unprecedented volume” of new claims, prompting its stock price to fall 21% to record lows.
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Ian Gordon, analyst at Investec, said the announcement by the UK’s sixth largest bank was “really quite shocking in terms of the anticipated damage”, pointing out that the bill represented 20% of the banking groups’ current market capitalisation.
It follows Royal Bank of Scotland, owner of NatWest, which said on Wednesday it could face a £900m charge. The Co-operative Bank is also assessing the costs.
Around 64 million PPI policies were sold in the UK, routinely added to products such as store cards, credit cards or mortgages. A type of insurance designed to help borrowers keep servicing their debts if they fell ill or lost their jobs, it was widely mis-sold with many customers pressured into buying it, and has since “become the UK’s most expensive consumer banking scandal by far”, says the Financial Times.
Banks have set aside billions to compensate customers, but the exact total cost to the industry has until now been unknown.
The Financial Conduct Authority said last month that compensation for PPI had so far cost the financial services industry £36bn.
However, Dominic Lindley of New City Agenda, who has been keeping a tally of payments, told the BBC the last-minute surge in claims means “provisions from the banks could reach £53bn”.
He believes the bank with the biggest bill, Lloyds Banking Group, could announce an extra provision of £2bn, while Barclays might set aside as much as £1bn more.
The Guardian reports that RBS and its NatWest arm “were hit by technical glitches on 27 August, with both banks’ main websites out of action for several hours”.
“There were more problems on 29 August, when some online PPI claimants were told that ‘due to system problems’ NatWest was unable to progress their application at present, while others reported jammed phone lines” it adds.
While the PPI mis-selling scandal has produced welcome windfalls for the millions of consumers who have submitted claims it has also “made multimillionaires out of the individuals who set up the biggest claims firms”, reports The Telegraph.
The paper estimates around 300 firms are understood to specialise in PPI claims, taking a chunk of the £36bn in compensation that banks have paid out.
However, the lucrative PPI chapter has come to an end now that August deadline has passed, leaving the future of this sector in doubt, with Martin Lewis, founder of the Money Saving Expert website, expecting the “short-term money farms” to cash in their chips and close while others will chase new scandals.
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