Lloyds shows cost of alienating customers

LLoyds TSB

There has been progress at semi-nationalised Lloyds.

Loans are going bad at a slower rate, and are not expected by Lloyds to deteriorate any time soon - which is another one of those benign trends that makes the current UK recession seem slightly odd.

The bank has further reduced its dependence on unreliable wholesale funding.

And although there has been a further fall in the profitability of lending, the so-called margin, that is now expected to stabilise before recovering early next year.

As for when the bank might resume paying a dividend and when the Treasury might start thinking about privatising some of taxpayers' 40% stake, that can all be evaluated in the autumn, after the shape of Europe's new banking rules are clearer (in what's known as CRD4).

Those positive developments have largely been drowned out however by Lloyds' disclosure that it is making a further £700m of provisions to cover the costs of paying compensation to those who were missold PPI credit insurance.

Those additional PPI costs meant Lloyds remained in loss, for the first six months of the year, to the tune of £439m. And they bring to a gargantuan £4.275bn Lloyds' aggregate provisions for recompensing customers who were wrongly sold this loan insurance.

What is perhaps horrifying in these huge numbers is how much time and money Lloyds is deploying on processing bogus claims.

The chief executive Antonio Horta-Osorio told me that Lloyds is employing 6000 people full time on processing claims for PPI compensation, of which 1000 spend all their time dealing with false claims.

Lloyds blames unscrupulous claims management companies (CMCs) for a sharp increase in fictitious claims. It says half of all requests for compensation come from CMCs, and adds that 50% of CMC claims are bogus.

If like me you are someone who never bought PPI insurance and yet receive daily calls and texts from CMCs claiming they have "information" that you are entitled to compensation, you may not be wholly surprised by Lloyds' claim that hundreds of thousands of people apply for compensation without any proper justification.

Mr Horta-Osorio complains that the system incentivises the bank to give money even to those with no decent argument for it, because the moment any case is forwarded to the ombudsman Lloyds incurs an automatic bill of £800.

Understandably Lloyds feels hard done by - and would like the Ministry of Justice, which authorises CMCs, to do something about the cowboys.

There is however a thoroughly painful and depressing lesson for the banks in all this.

All that mis-selling and all that reckless lending in the boom years that hobbled the economy seems to have so undermined the trust and respect of banks' customers that few seem to think twice before putting in a flimsy demand for compensation.

An epidemic of mis-selling may have spawned an epidemic of mis-claiming.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 29.

    Yes PPI provisions have increased further, but what about some of the positives?

    1. Lending to SME's up 4% (against a 3.5% decrease across the industry). Very positive for the UK economy
    2. Profit before tax (exc PPI) £1.1bn - Positive given that large stake tax payers hold

    Anything positive gets overlooked though when there is an opportunity to bash the Banks...

  • rate this

    Comment number 28.

    I wonder Govts passed a present told me that if I take the un-holy shafting of Tax & NI if I slogged my guts out
    and survived I would be rewarded with a basic state pension.. at 65, I know this would be chicken feed compared to if I was slouching on benefits
    However they have shafted again so is this not the same where can I claim my money back ???

  • rate this

    Comment number 27.


    I was talking about us mugs, aka customers!

  • rate this

    Comment number 26.

    Mr Horta-Osario is being disingeniuos (surprise)

    All he needed to do was go through all the PPI policies they sold and any that hadn't paid out he could refund the premiums, but no, he makes people who think they may have been defrauded (well what do you call it?) jump through hoops and make claims.

    He should be applauding the entreprenurialism of the CMCs, creating a business from nothing.

  • rate this

    Comment number 25.

    Do they not have insurance against such an occurrence ? :)

  • rate this

    Comment number 24.

    I normally don't get worked up about mis-selling stories, as I reckon it's my fault if I don't read the small print. But there's one niggling detail about this one:

    I got a new credit card from Lloyds recently. For the first time in ten years I don't have to phone them to "activate" it. So, has card fraud magically disappeared? Or was "activation" only ever a cover for the hard sell?

  • rate this

    Comment number 23.


    "No such thing as a free lunch!"

    It depends. If you are a banker who scooped out mega bonus or ended up with huge pension (Fred the Shred?) on the back of the original PPI mis-selling amongst other misdemeanours then the free lunch mantra does not really apply...

    Unless, that is, somebody starts looking at restitution...

  • rate this

    Comment number 22.

    As they sow so shall they reap.

  • rate this

    Comment number 21.

    So PPI mis-selling has cost Lloyds over £4 bn.
    Who is accountable for this? Have they been sacked? Or have they been moved and still cling on to lucrative bonuses?
    Also if the management is still entitled to bonuses despite losing £4bn how bad do they have to perform to be not entitles to a bonus?

  • rate this

    Comment number 20.

    Same in all business though, sometimes it is cheaper to pay out a small amount than waste staff time (cost). Usually a big firm will pay out a small amount when things like ombudsman or court are mentioned. Makes me angry as it ultimately costs the honest customer more.

  • rate this

    Comment number 19.

    Horta Osorio was the first CEO to break ranks among the banks on PPI acknowledging and creating significant provisions. Described at the time as a bold move and making his mark on the new approach from banks. Right but not thought through. Haste has created a "PPI Recovey Industry" and further reduced bank value. Hard now to complain about unsubstantiated claims and cost of handling.

  • rate this

    Comment number 18.

    Financial naivity rules yet again. First by The Directors of the Bank seeking ever larger returns for their masters-the PensionFunds etc. Then customers are depicted as being completely clueless regarding what they sign up for. Why is there not a requirement to provide evidence to substantiate a claim? Typically British ineptitude all round.

  • rate this

    Comment number 17.


    Dream on!

  • rate this

    Comment number 16.

    Or, like me, tens of thousands of people got contacted by a PPI reclaim outfit promising a very specific claim amount. Only when I went back and checked did I discover (as I'd thought) that we'd never taken any PPI out.

    People may simply not be diligent, or may be trying it on. Bottom line - the whole mess created by the banks yet again, had they not miss sold, there would be no problem.

  • rate this

    Comment number 15.

    Like Robert Preston I have never bought a PPI becouse it was a bad deal people who did puchase were not 'mis sold' they were stupid and will now I expect start pleating- cheered on by the media- that they have been ripped off by a claims company they have no need to use, taking some of there compo

  • rate this

    Comment number 14.

    Fewer debts going bad is because they are not lending any money. The bad debts in 2008 were from Banks buying derivative investments on loans sold to people in the US and for which they had no real understanding.The banks incompetence means its virtually impossible to get a loan without underwriting the loan yourself. Hence nobody is borrowing money

  • rate this

    Comment number 13.

    Every individual PPI claim must be processed with full details. Claims from CMCs must come with a £100 up front payment. IF the claim is correct you get your money if not you lose the £100. Simple.

  • rate this

    Comment number 12.

    One doubts that it is a 'lack of trust and respect' for banks behind these bogus PPI claims. More like pound signs in the eyes. It's why people suddenly develop terrible whiplash after a minor car collision: claim every last penny they can from the Government, and: shell out thousands to transfer large sums from Nigeria!

  • rate this

    Comment number 11.


    Just remember that all that money given in claims will be paid by you in increased margins on your loans, or decreased interest on your deposits.

    No such thing as a free lunch!

    Oh no they won't. It will come from the bonuses, shareholders dividends and asset stripping. Remember Camerons promise of swift justice, we do. Crime cannot be allowed to go unpunished, remember the riots?

  • rate this

    Comment number 10.

    The banks dish it out; but can't take it. Like bullies everywhere.
    If they think the PPI mess is bad, just wait...
    The mother-of-all-class-actions will be launched in the US.
    The financial sector will have to pay out like the US tobacco industry - only bigger. They won't admit any wrongdoing of course.
    That will be the time to use the expression 'eye-watering."


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