Lloyds accused over PPI loophole
Taxpayer-backed Lloyds Banking Group has been accused of using a loophole to slash awards to payment protection insurance (PPI) claimants in a move allegedly saving it tens of millions of pounds.
An investigation by the BBC claims that Lloyds has been reducing payouts to personal loan customers who believe they were wrongly sold PPI by using so-called comparative - or alternative - redress.
One expert blasted it a "scandal coming out of a scandal" and said Lloyds had been able to cut its PPI compensation bill by more than £60 million since using the loophole over the past year.
The BBC alleges that figures from the Professional Financial Claims Association (PFCA), which represents claims management companies, shows Lloyds has used comparative redress in as many as one in four cases in some months.
But Lloyds - whose total PPI compensation bill has now hit nearly £10 billion - disputed the figures, saying they were "incorrect and deeply misleading" and said it used comparative redress in 5% of all PPI cases since it was introduced last February.
Comparative redress can be used in specific cases when a customer was sold a notorious single premium policy and where the lender deems they were eligible for PPI, but would have instead bought a cheaper, regular premium policy paid in monthly instalments.
Instead of receiving compensation for the full amount, the claimant receives the difference between single premium and regular premium PPI.
Claims management companies told BBC Radio 4 they have been referring all comparative redress cases to the Financial Ombudsman Service (FOS), with one firm claiming every single case challenged so far had seen the bank overruled.
Cliff D'Arcy - a PPI expert and former employee in the PPI operation at Halifax Bank of Scotland, which is part of Lloyds - told the BBC it should only be used in fewer than 1% of cases.
He said: " Frankly I'm amazed that this problem has existed throughout the last year and hasn't emerged into the light."
"A taxpayer sponsored bank is depriving taxpayers of their rightful compensation by using a loophole. It's a scandal coming out of a scandal," he added.
Lloyds fought back against the allegations, saying the numbers provided to the BBC were based on a small and unrepresentative sample.
It said: "The FCA (Financial Conduct Authority) handbook is very clear that in these specific circumstances, the provider should give redress that puts the customer in the position they would have been in had the customer taken the regular premium policy.
"In addition the numbers for overturn rates are again misleading. The overturn rate for loans claims is the same whether it is for comparative redress or for other reasons."
The FOS, which handles more than 6,000 PPI cases a week, said it was seeing "a small number" relating to comparative redress involving all the major high street lenders.
It advised claimants who feel they have been wrongly offered comparative redress to contact their bank first.
Single premium PPI was the most controversial form of PPI and was banned from October 2010.
It came under heavy criticism because it was paid up front and saw the cost of cover rolled up into the loan, with borrowers paying interest on it.
An FCA spokesman said: "We are keeping a close eye on how the industry handles all PPI complaints and are quick to challenge anything we think is unfair."