Lloyds accused of short-changing PPI claimants

A customer walks into a branch of Lloyds Bank in London Lloyds Banking Group says it offers the correct level of compensation in line with regulatory guidance

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Lloyds Banking Group has been cutting the compensation it pays to payment protection insurance (PPI) claimants, a BBC investigation has revealed.

PPI expert Cliff D'Arcy told the BBC Lloyds had saved more than £60m over the past year by cutting compensation.

Lloyds refused to be interviewed on the issue. It was offering the correct level of compensation in line with regulatory guidance, a statement said.

Lloyds cites a little-known regulatory provision called "alternative redress".

Alternative redress - also known as comparative redress - allows a bank, in specified circumstances, to assume that customers to whom it wrongly sold single-premium PPI policies would have bought a cheaper, regular premium PPI policy instead.

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In such cases, a bank is entitled to deduct the cost of the regular premium policy from the full compensation they would otherwise have had to pay.

For claimants, this deduction can make a large difference to the compensation Lloyds offers.

Mr D'Arcy, who previously worked at HBOS's PPI operation, told BBC Radio 4: "Frankly I'm amazed that this problem has existed throughout the last year and hasn't emerged into the light."


Care worker Veronica Rayner had two loans from Halifax, now part of Lloyds Banking Group.

Mrs Rayner told the BBC that when she had taken out her loans she had been unaware that the bank had sold her PPI policies as well.

What is PPI

Payment protection insurance was designed to cover loan repayments if the policyholder became ill, had an accident or lost their job.

However, the policies were mis-sold on a huge scale to those who did not want or need it, or would have been unable to make a claim.

Her £2,300 compensation offer from Lloyds was set out in a seven-page letter with an additional two-page appendix of calculations.

Mrs Rayner said she hadn't realised from the offer letter that the bank had applied alternative redress to her claim.

But after her claim was referred to the Financial Ombudsman, Lloyds was told to pay her an additional £1,200 of compensation - over 50% more than it had originally offered.

"I don't think it's very fair. I think they should just offer people the right amounts and get it done. It's cheating people in a way," Mrs Rayner said.

Lloyds told the BBC 11% of offers it made in the fourth quarter of 2013 on loan complaints were made by applying alternative redress.

Analysis of a large survey of PPI offers undertaken by the PFCA, a trade body representing claims management companies, suggests in some months more than 25% of Lloyds's offers were made by applying alternative redress.

But Lloyds told the BBC only 5% of offers made last year were made in this way.

'Customers short-changed'

Start Quote

Lloyds is making substantial savings of millions of pounds a month, and customers are being short-changed”

End Quote Cliff D'Arcy PPI expert

Mr D'Arcy told the BBC such use of alternative redress was unjustifiable. He said such reductions could legitimately be applied in fewer than 1% of PPI cases.

"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 said.

Claims management companies have told the BBC they have routinely been challenging alternative redress offers from Lloyds by referring them to the Financial Ombudsman Service.

Martin Baker, of Swindon-based company Renaissance Easy Claim, said the ombudsman had so far ruled on more than 100 of his clients' cases.

"In every single case our challenge has been upheld, and clients will now be entitled to full redress," Mr Baker told the BBC.

Mr D'Arcy is unsurprised that so many offers are being overturned by the ombudsman.

But he warned that, since nine out of 10 PPI compensation offers were not referred to the ombudsman, most of Lloyds' alternative redress offers were likely to go uncontested.

As a result, Mr D'Arcy told the BBC, "Lloyds is making substantial savings of millions of pounds a month, and customers are being short-changed".

Lloyds Banking Group has refused to say how many alternative redress offers were made in total last year or by how much offers were reduced as a result.

But in a statement it said: "The numbers that have been provided to the BBC by the claims management companies are incorrect and deeply misleading.

Since we started making comparative redress offers last year, that equates to 5% of the total number of complaints that we have dealt with.

For these, we have used a formula agreed with the Financial Conduct Authority. The overturn rate for loans claims is the same whether it is for comparative redress or for other reasons."


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  • rate this

    Comment number 133.

    The Directors of Lloyds are doing there job, to try to minimise the compensation paid out to customers, and hence maximise the profits for shareholders, and bonuses for senior staff
    As a shareholder, I applaud the board. Well done for looking after yourselves and shareholders
    It is about time a dividend was paid to your long suffering shareholders
    Keep up the good work to maximise profits/bonuses

  • rate this

    Comment number 127.

    My initial complaint to Lloyds' back before PPI hit the that fan so to speak, was the fact they put interest on the insurance payments when they bundled them all up with the loan. I received a 'Goodwill 'payment which I accepted having banked all my life with Lloyds . What a fool I was, when I queried this , they said I had signed an agreement and I could lump it basically. Such is life.....

  • rate this

    Comment number 117.

    I made two claims to Barclaycard for different cards I have with them. They sent exactly the same response within a couple of weeks declining my claim because "I had applied for PPI and not asked for advice". When I asked for copies of the documentation they were using to decline they said i had no right to see it under data protection laws. No wonder no one trusts the banks

  • rate this

    Comment number 115.

    When I claimed from my bank, I found out I had been paying for a PPI policy that did not exist, when my wife was made redundant we looked in to claimining on the policy, it did not exist. So when I see Lloyds (Not my bank) are trying to get out of paying full compo, it does not suprise me. Always use the Ombudsman if your Bank tries it on with you.

  • rate this

    Comment number 112.

    My Lloyds PPi case is 12 months old, they are hopeless to deal with,constantly stonewalling my calls,I have all of the paperwork, so its straight forward.If you Claim they have to manage it within clearly defnined response times but if they reject your claim, its marked as 'closed' they are not bound by any response times so they string it out....forever in the hope that you will go away..or die


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