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
    +1

    Comment number 69.

  • rate this
    +1

    Comment number 68.

    Dodgy PPI claims, dodgy car insurance claims, dodgy tax schemes, the cost to the ordinary honest citizen levied by the so called establishment be they politicians ,bankers accountants or lawyers is a national disgrace the lavish lifestyles of these parasites has to be seen to be believed it's where the real cancer in society is when people are actively encouraged to commit fraud

  • rate this
    0

    Comment number 67.

    RP: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.
    ~ ~
    Start of a total breakdown in UK society?

  • rate this
    +4

    Comment number 66.

    I can't agree the conclusion that the behaviour of bankers somehow provides a green light for other people to lie and cheat in turn.

    It also distracts from the central failure to subject senior bank officers to charges under the criminal Law. Leeson served time for what seem less serious offences than some of the organised gang activity we hear about within banks to defraud and cover it up.

  • rate this
    -1

    Comment number 65.

    The true story of this scandal and the injury done to those who believed they were insured, has never yet emerged. That an industry ogbogies is milking the claim process is as regrettable as the scandal itself, which was far broader than simple mis-selling and still is not properly told. The problem was far broader than the mis-selling and is a scandal,s scandal not properly reported.

  • rate this
    0

    Comment number 64.

    RP: 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.
    ~
    Forgotten so soon, Robert, that people as well as business are deleveraging?

  • rate this
    +3

    Comment number 63.

    @61.Mr Right
    Just now
    I presume every bogus claimant will be the subject of a criminal prosecution for attempted fraud?

    Of course, the interest rate rigging fraudsters will be in the same court as well. The financial Services Authority (incompetent toothless department) will see to it all.

  • rate this
    +5

    Comment number 62.

    Notice how private debt has to be paid off, and rightly so but, how about the debts of bailed out lame duck banks? When does each family in the UK get their £5,500 back? The amount it cost each family to bail out lame duck banks (excludes interest rate rigging and, drug cartel money laundering banks)

  • rate this
    -2

    Comment number 61.

    I presume every bogus claimant will be the subject of a criminal prosecution for attempted fraud?

  • rate this
    +1

    Comment number 60.

    The problem with all Political Parties is,you do not get a definate yes.All you get is a definate maybe.
    In other words....They do not have a clue ?
    Poliitics is the science of being able to deny responsibility,for anything.
    And all of oue Politiicians are very good at that,
    .

  • rate this
    +2

    Comment number 59.

    25.A Seditious Malcontent
    2 Hours ago
    Do they not have insurance against such an occurrence ? :)

    If they dont then I might be able to sell them it, however i promise to make them aware that if they are a bank then they can never claim it, it will be written somewhere in the small print.

  • rate this
    +1

    Comment number 58.

    @55
    "The popularity of bankers is now at the level of that normally reserved for tax inspectors, or traffic wardens." I'm fine with tax inspectors and traffic wardens, most of them are honest citizens doing an unpopular job. There is a difference.

    Yes, they should have said, Bubonic plague, rats, serial killers etc..

  • rate this
    +2

    Comment number 57.

    What the bogus claims proved is the inbuilt dishonesty of the British public, who pretty much like the bankers, aren't afraid of a lying if it makes them a fast buck.

    It has been brought about by unbridled capitalism, and the "loadsa-money" society.

  • rate this
    -1

    Comment number 56.

    5.
    The problem with the cartel of banking,What should happen is lloyld cheat,lloyds get massive costs as they cheat,lloyds increase margins,lloyds lose customers to better banks,lloyds shares drop, lloyds bought by better people, lloyds regains credility,lloyds get customer, lloyds profits,People who hasn't lied is happy,has a free lunch.Instead we lose though high prices.

  • rate this
    0

    Comment number 55.

    What goes around comes around..

    Now I expect the unfortunate Mr Horta-Osorio wishes he'd stuck with Santander!

    "The popularity of bankers is now at the level of that normally reserved for tax inspectors, or traffic wardens." I'm fine with tax inspectors and traffic wardens, most of them are honest citizens doing an unpopular job. There is a difference.

  • rate this
    0

    Comment number 54.

    22.watriler

    You're so right, but you may have to add the caveat 'evenutally'.

    Whilst some seek to continually write a 'sick note' for the UK banking industry, or the BBA, or this bank or that one, the fact is their credibility disappears more and more on a daily basis.

    The popularity of bankers is now at the level of that normally reserved for tax inspectors, or traffic wardens.

  • rate this
    +3

    Comment number 53.

    @34
    Banker bashing isn't really fun. It's sad that it is necessary but, when you look at the latest revelations regarding their conduct/ethics we are left with no choice. After all 'we're all in this together'? Fixing the economy without including the most broken part of it is a waste of time, as you can see. The greed of the financial sector cannot be allowed to continue destroying the economy

  • rate this
    -1

    Comment number 52.

    As Clinton said - it's the economy stupid.
    These banks rely on this feel good factor and in these double dip times they have had to seek other ways of ripping us off.

    First and foremost they have gulped down the governments, our, bailouts.
    Call it recapitalization or whatever.
    They have got it.
    It was ours.
    And we are never going to get it back.
    Meanwhile dip dip. And the banks are still dipping.

  • rate this
    +4

    Comment number 51.

    I like the idea anyone selling anyone a duff product,should be held responsible and pay appropriate compensation.
    Any chance the same principle will apply to Political Parties?

  • rate this
    0

    Comment number 50.

    Perhaps the bail outs are to enable the banks to pay their fines, sort out paying off PFI and interest protection schemes, rather than the banking crisis.
    Is the tax payer being taken for a fool, again?

 

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