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 109.

    Lloyds - Your chickens are coming home to roost!

  • rate this

    Comment number 108.

    The unscrupulous banks, the CMCs and the customers supporting phoney claims - all examples of the dysfunction that happens when greed is your only goal.

  • rate this

    Comment number 107.

    Your title: "Lloyds shows cost of alienating customers"
    My title: "Lloyds shows practices that alienate customers." & add to the banking culture stench.
    It seems the banking-culture mantra is: "Answer customers' questions, reveal as little as possible, do not ad-lib, you have succeeded when the sucker signs the paper & walks out the door.

  • rate this

    Comment number 106.

    Lloyds has also been named defendant in US class action lawsuits linked to Libor. Horta-Osorio could not estimate potential cost of Libor lawsuits & settlements.
    Lloyds’s underlying revenue is sliding (10B pounds to cover losses on real estate loans).
    What is this 2019 for implementing reforms? Where are the investors to force banks to implement Vickers’ reforms by 2015?

  • rate this

    Comment number 105.

    Not alone. Banking culture increased cost of mistrust:
    Barclays has set aside 1.3B for PPI.
    HSBC 770M-pound provision &
    RBS 1.2B.
    Country’s 4 biggest banks by assets have set aside about 8B pounds for compensation. FSA estimated banks would need to pay about 9B pounds.

  • rate this

    Comment number 104.

    I have no compassion for Lloyds:
    1. if it hadn't engaged in mis-selling, "gargantuan" £4.275B provision for recompense would not be necessary - bogus or otherwise;
    2. in engaging in mis-selling (& perhaps other nefarious dealings), the bank created the mistrust that now comes back to haunt it;
    3. I never received a bank dividend in my life - won't miss it.

  • rate this

    Comment number 103.

    '... debt fuelled consumerism'

    AKA Growth... Hoorah!!...errm....

    'We have to use market mechanisms to fix the market..'

    What...is it broken?

    What you are really saying is do nothing. Capitalism would work Sooo well if it weren't for namby-pamby governments sticking their noses in....in the Land of the Cloud Cuckoo perhaps.

  • rate this

    Comment number 102.

    It seems we have become a society devoid of a moral compass. It’s a survival of the fittest and get away with what you can mentality.

    Is this the shape of Darwin’s world? Is it the world we choose to live in? Only the reader can decide that through his/her own life choices. Look to one’s own behaviour; what another does should be irrelevant in terms of one’s own conscience.

  • rate this

    Comment number 101.


    One particularly foolish person wanted to suspend the payment on interest on all debts until they has been forensically examined.

    1. who will examine the debts?
    2. who will pay for such an examination?
    3. what's the point?

    This is the type of insane solution that seems to abolish thousand's of years of the market. Completely bonkers!

    We have to use market mechanisms to fix the market.

  • rate this

    Comment number 100.

    Lloyds are lucky, a lot of us accepted goodwill payments at the start of the PPI scandal, we were mis-old and misled. Trusted our bank see, more fool us.

  • rate this

    Comment number 99.

    The 'solutions' to the banking crisis being offered here and on Stephanie Flanders's blog by some (desperate over-borrowed individuals) are well past the border of insane and can and will only lead to the complete collapse of the economy.

    The mechanisms the exist are the ones to fix the problem, like PPI claims etc.

    Money has to again be prudently priced and this WILL fix the system.

  • rate this

    Comment number 98.

    The banks are suffering from a gross lack of credibility.

    Barclays today, are another example, 'look how our performance and profits show what a good thing this universal business model is'.

    Actually, Marcus, no it's not, so just stop the spin right here and now because you're not fooling anyone anymore.

    You've lost your street cred, mate.

  • rate this

    Comment number 97.

    Its a relatively new experience for banks - other businesses making money from the banks' customers. So they're going to find it odd until they get used to it. .

    Its something they've been doing for eons - making money from customers of other businesses
    Each time a credit card is used or cheque is cashed banks charge businesses. Ultimately the customer pays.

  • rate this

    Comment number 96.

    Very kind of the owners to bail out the venal salesmen and management who created this problem. They must have endless patience and very deep pockets.The owners are refinancing banks who damaged themselves with deliberate utterly disgraceful behaviour by people who enriched themselves by fraud.

    Remind me, who are the owners again?

    Never getting it back......

  • rate this

    Comment number 95.



    Who was managing the banks when they were lending irresponsibly


    On a system set up by Brown.

    But King etc were INDEPENDENT

    and by the way were still in post and are still in post under Cameron

    The whole basis of regulation and the way it was carried out is wrong and bad and still is!

    Ignorant minnows who need sacking!

  • rate this

    Comment number 94.



    "Banks sold over-priced PPI to cross subsidise under-priced loans"

    They were smart enough to overcharge for one product, butwhat? Too stupid or too kind to charge properly for another?

    As for borrowers on a gravy train... what percentage does a bank make on a mortgage over it's lifetime? Were house prices rising or falling?

  • rate this

    Comment number 93.

    Anyone know of any law firms I can invest in that are on the stockmarket? With all the bankers, politicians, journalists and now false PPI claimants with the claims companies next to them in the dock in the not too distant future, seems it is just about the only growth industry we have at the moment.

  • rate this

    Comment number 92.

    Banks sold over-priced PPI to cross subsidise under-priced loans. All borrowers who bought PPI are getting their money back. Result is that all borrowers enjoyed 10 years on the gravy train at the expense of the banks before needing to bail the same banks out. What goes around comes around

  • rate this

    Comment number 91.

    81 rememberdurutti

    novel take on reality there - a few facts for you .

    Who was managing the banks when they were lending irresponsibly
    - Brown and Balls

    Who was not
    - Cam & oz

    who forced lloyds into buying hbos , thus destroying them .
    - Brown & Balls

    who did not
    -Cam & Oz

    who ordered an inquirey into banking practice
    -Cam and Oz

    who did nothing at all.
    - Brown and Balls .

  • rate this

    Comment number 90.

    ALL - a false claim is actually a claim by a client who is not sure they were sold PPI, and this is because the banks were so underhand in their methods. So a client has every right to question if they were sold PPI. A claims company then takes that query to the bank - for the bank to call it a false claim is a total and utter lie. But then again that would be in keeping with their behaviour!


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