PPI: Compensation payouts could have £1bn shortfall

credit cards Some PPI charges put customers over their borrowing limits on credit cards

Related Stories

Some leading banks may have underpaid compensation certain customers are due for mis-sold Payment Protection Insurance, the BBC has learned.

One expert, commissioned by the BBC, estimates it could amount to "somewhere in the region of £1bn".

The customers potentially affected had PPI on credit cards issued by Lloyds Banking Group, Barclays, MBNA and Capital One.

All claim to make every effort to pay a correct amount of compensation.

The extent of the shortfall is difficult to assess.

The shortfall in compensation arises because, although these banks all refunded the premiums on their mis-sold PPI policies plus interest as regulators require, they have been failing correctly to refund additional charges which were triggered by the premiums of the mis-sold PPI policies.

Some of those premiums put people over their borrowing limits, meaning they were then charged an additional fee.

This failure to include fees and charges in compensation calculations has resulted in dramatic reductions to the amounts some customers have received.

The Financial Conduct Authority (FCA) has told the BBC that it is already discussing the issue with the banks involved.

"If there are penalty fees or charges that arise from the mis-sale of the original PPI, then they should be refundable," said Clive Adamson, the FCA's director of supervision.

One PPI claimant Mark Pascoe said he felt "ripped off"

'Almost robbery'

In February, Mark Pascoe was paid £5,800 of PPI compensation by the large credit card company MBNA. But MBNA's calculations did not include just over £600 in fees and charges Mr Pascoe incurred since taking out his card in 1997.

According to the claims management company advising Mr Pascoe, had those fees been correctly included in the calculations, his compensation payout would have more than doubled - to more than £13,000.

"It's absolutely outrageous," Mr Pascoe told the BBC. "That's almost robbery, isn't it? They should be fined big time."

MBNA said they would not comment on a case still under review.

Martin Baker, managing director of Renaissance Easy Claim, the company advising Mr Pascoe, says his case is by no means atypical.

Mr Baker says he has identified a string of clients with PPI on their credit cards who suffered compensation shortfalls which run into many hundreds or thousands of pounds.

"It was just another way by which the banks and lenders were trying to reduce their compensation bills," says Mr Baker.

Compensation

All of the banks concerned declined an invitation to be interviewed on how their compensation calculations work and why they are not fully including the effect of fees and charges, as regulators require.

In a statement to the BBC, Lloyds Banking Group said: "When a customer lets us know that they may have incurred other costs because of their PPI policy, we will investigate and make an appropriate refund."

Regulators have told the BBC that such fees and charges should be included in the initial offers that banks make.

Barclays acknowledged that its previous system, which assessed month-by-month whether a PPI premium had triggered a fee, did not fully capture the cumulative effect of fees and charges, as regulators require.

But it said it had compensated customers who were affected.

"Both our current and historic methodologies have been assured as compliant with regulations. In the case of late and over limit fees, where it is possible to identify that fees have been triggered by the customer taking PPI, we have already repaid them and in recognition that we may not have been able to identify all fees, we have paid additional interest to more than mitigate any customer detriment," a spokesperson told the BBC.

line break
What is PPI?
  • Payment protection insurance was designed to cover repayments, in the event of redundancy or ill-health
  • It was widely mis-sold, often to people who did not know they were paying for it
  • £15bn paid out so far for mis-selling
  • £22bn set aside by banks to compensate customers
  • average pay-out so far: £3,000 per customer
line break

MBNA confirmed it currently operates a monthly assessment methodology, but one that excludes most fees and charges. MBNA told the BBC: "Because of this, it is not and never has been our practice to refund these fees.

MBNA said their methodology had been independently reviewed and they were confident it was correct.

"The last transaction to be applied to the account at the end of the statement period is the PPI premium (ie, after the over-limit fee has been assessed) and as such, it can never be the PPI transaction that causes an over-limit fee in that statement period," MBNA said.

Recalculations

Capital One declined to reveal its compensation methodology. In a statement to the BBC, the company said: "We aim to pay redress that puts the customer back in the position they would have been in if they had not had PPI."

However, the BBC has learned that the Financial Ombudsman Service has recently instructed Capital One to recalculate two cases of compensation to include fees and charges.

And it has begun investigating how Capital One recalculates its offers in relation to fees and charges across all cases.

Find out more

Cash in hand

Listen to Michael Robinson's full report on what individual banks have done; how to find out if you qualify for more compensation; and how to get it if you do on You and Yours on Radio 4 at 12:00 BST on Thursday 5 May

It is difficult to establish how much compensation the banks concerned have so far avoided paying their customers, since only they have access to the detailed records required for an accurate assessment.

So the BBC commissioned Cliff D'Arcy to estimate the size of the compensation shortfall and how much banks would have to pay to make it good. Mr D'Arcy spent 12 years as a banker working in the PPI industry.

Now an independent consultant, Mr D'Arcy has become a prominent critic of how banks had mis-sold the product and dealt with subsequent compensation claims.

Start Quote

Widespread failure to carry out proper calculations would most definitely be disappointing”

End Quote Caroline Wayman Financial Ombudsman Service

Mr D'Arcy said: "I'm confident that the figure will be somewhere in the region of £1bn of extra compensation."

He told the BBC: "It was only when I got deeper into the numbers that I realised the scale of this problem.

"It's because banks were charging very high penalty fees, very high rates of interest on borrowing and some of these claims go back decades. So it just compounds and multiplies to a very big number."

'Disappointing'

The Financial Ombudsman Service (FOS) is the ultimate arbiter of PPI compensation disputes between customers and banks.

Principal Ombudsman Caroline Wayman told the BBC that under the rules, there is no doubt fees and charges triggered by mis-sold PPI premiums have to be refunded to customers.

"If a fee is the result of the mis-sold PPI, it should be given back, and if it's not included, that would be a mistake," said Ms Wayman.

She says she does not how widespread this problem is, but told the BBC: "The first thing is to understand how many times has this has happened and how many times it's had a material impact. That's very difficult to judge."

Caroline Wayman Caroline Wayman says customers should check with their credit card companies

"Any widespread failure to carry out proper calculations would most definitely be disappointing," she added.

Ms Wayman says credit card customers who suspect their fees and charges were left out of their compensation calculations should go back to their banks to ask what happened.

"If you're not satisfied with the answer, bring it to the ombudsman and we can see what we can do," she said.

FOS has handled about a million PPI compensation cases, with some 400,000 more still in the pipeline. Last year, FOS took on 1,000 new staff to help deal with that backlog.

That caseload is now likely to grow.

But Mr D'Arcy says the Financial Conduct Authority should take the initiative and instructs banks that "charges and the interest on them should be repaid to each and every customer in each and every case".

Listen to Michael Robinson's full report on You and Yours on BBC Radio 4 at 12:00 BST on Thursday, 5 May.

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

Business Live

  1.  
    Via Twitter James Cook Scotland Correspondent, BBC News

    "Shoppers rescued from flooded Asda in Kilmarnock"

    East Ayrshire Police
     
  2.  
    10:20: Tesco inquiry

    Our business editor points out that the Financial Reporting Council only has power over its members - i.e. auditors, which in Tesco's case were PwC. However, the FRC can ask Tesco to assist in the investigation.

     
  3.  
    Via Twitter Kamal Ahmed BBC Business editor

    "FRC's inquiry will include PWC's auditing of Tesco's accounts as well as the preparation of those accounts"

     
  4.  
    Breaking News
  5.  
    09:55: Scotland's budget
    North Sea Oil

    The lead in the Financial Times is a suggestion that Scotland may have been saved from a crisis in its public finances by voting "no" in the referendum on independence. It says projections by the Office for Budget Responsibility suggest that had Scotland voted "yes", the falling oil prices would have led to its North Sea oil revenues slumping to just one-fifth of Holyrood's preferred forecasts in the country's first year of independence.

     
  6.  
    09:40: Snow-plough parents
    Skiing

    The Times highlights what it says is a new trend for well-heeled British parents: hiring private tutors to accompany them on family skiing trips. This apparently allows teenagers to cram for forthcoming exams, while still enjoying some action on the piste. The paper says it brings fresh meaning to the term "snow-plough parents" - those over-protective parents, bent on removing every obstacle in their offspring's path.

     
  7.  
    09:25: Spanish tax
    Cristina

    A judge in Spain has ordered that Princess Cristina de Borbon, the sister of the Spanish King, be tried on charges of tax fraud. It will be the first time a member of the Spanish royal family appears in the dock.

     
  8.  
    09:10: Facebook friends Russia
    Navalny

    On its front page, The Independent reports that Facebook has been accused of giving in to censorship after it apparently blocked access to a protest page on its site - under pressure from the Kremlin. A former US ambassador to Russia describes it as a "horrible precedent". According to The Daily Telegraph, Facebook has declined to comment on the suggestion that it stopped Russian users from viewing a page, rallying support for one of President Putin's most prominent opponents.

     
  9.  
    08:55: UK jobs Radio 5 live

    The employers' organisation, the CBI, says its latest survey suggests that half of its members plan to take on more staff next year. "Skills are at a premium in lots of areas," says CBI's director for employment and skills, Neil Carberry. "In fact one of the things we found in this year's survey is the biggest worry now for companies in their broadly rosy picture is whether they can get the skills they need to keep growing."

     
  10.  
    08:45: Markets update

    The main European markets are all looking rather chirpy this morning. Gains for oil firms, including Tullow Oil, Royal Dutch Shell and BP are driving the FTSE up 1% to 6,608. That's partly because Brent Crude has risen by 2% to $62.24 a barrel. In Germany, the Dax is up 0.9% to 9872, while in France, the Cac-40 is up 1.2% to 4293.

     
  11.  
    Cranking up Lada 08:28: Via Email Tony Higgins Lada owner

    "We had a Lada Niva. We bought it when we moved to a Lancashire hill farm in 1993. It was great. The early years were bad winters but the Lada coped very well. It was like a crab both on and off road, permanent 4WD. No power steering so hard work."

     
  12.  
    08:12: Pull over, Uber
    Xiaomi

    Uber may have been valued at $40bn, but one Chinese tech firm could now be worth an estimated $45bn, despite being relatively unknown outside Asia. The WSJ reports that smartphone and tablet maker Xiaomi, whose polished branding and devoted fan base is reminiscent of Apple's, has overtaken Samsung in China, but faces several challenges in expanding into India and beyond.

     
  13.  
    07:54: Cranking up Lada

    So, on to some of those Lada jokes. What do you call a Lada with a sun roof? A skip. What do you call a Lada with a sunroof and twin exhausts? A wheelbarrow. Etc. Send us your favourite Lada jokes: bizlivepage@bbc.co.uk and we will publish the best. Or if you've driven a Lada, and think they get a bad rap, let us know.

     
  14.  
    07:49: Cranking up Lada
    Lada

    The New York Times reports that the Kremlin is seeking to revive Russia's last major Soviet brand - the carmaker Lada. It has recruited Swedish-American Bo Inge Andersson, previously a vice president at General Motors. Lada, historically the butt of many jokes, still accounts for a third of all cars in Russia, and as foreign companies like Audi and Jaguar Land Rover suspend sales in the country due to the plummeting rouble, the utilitarian company could return to strength.

     
  15.  
    07:35: B&Q China
    bnq

    Kingfisher says it will flog its controlling 70% stake in B&Q China to Wumei Holdings for £140m. It opened its first B&Q in the country in 1999.

     
  16.  
    07:25: Oil blessing?

    The Guardian's leader takes a contrarian stance on falling oil prices, which have been widely welcomed by Western consumers. "Oil has dipped 40%, pessimists fear, because the world no longer expects a return to economic full pelt," it argues. "Europe, Japan and - relative to its own vigorous standards - China, have all been looking anaemic this year. Like low blood pressure after a heart attack, then, cheap oil should arguably be regarded not as a sign of rude health, but rather as a consequence of malaise."

     
  17.  
    07:12: Budget Samsung
    Samsung

    $100 for a Samsung smartphone? CNBC reports the South Korean company is entering the increasingly competitive budget handset market, in a bid to sell more phones in India, where many people still use simple phones. The new handset will run Samsung's own Tizen software.

     
  18.  
    06:58: Rates Radio 5 live

    The Bank of England's Martin Weale adds that he is optimistic about the year ahead. More money to spend from cheaper oil will help. He's on the committee that helps decide the key interest rate. Will it rise this year? He's careful not to second-guess his colleagues on that one.

     
  19.  
    06:46: Santa rally? Radio 5 live
    santa

    Will there be a so-called Santa rally this year? A rise in markets in the days around Christmas? Brenda Kelly from IG says you see one in almost nine out of every 10 years since the '80s.

     
  20.  
    06:28: Rates Radio 5 live

    The Bank of England's Martin Weale has been telling Wake Up to Money why he's been voting for interest rates to move off the record low of 0.5%. "It isn't only that unemployment has been falling - at least until recently extremely rapidly. It's also that when I go and visit businesses throughout the country I find they're talking of pay increases in a way quite different from what I was hearing early in the year certainly this time last year."

     
  21.  
    06:16: Markets Radio 5 live

    Brenda Kelly from IG is Wake Up to Money's markets guest. They are talking about the falling oil prices. "A lot of it is down to a glut of supply and Saudi Arabia wants to keep market share," she says. Saudi's breakeven price is only a few dollars per barrel.

     
  22.  
    06:10: Christmas spending Radio 5 live

    Mark Barnett, UK & Ireland president of Mastercard, is on Wake Up to Money, talking about Christmas shopping habits. What else? People have returned to luxury goods, he said. Holidays and furniture are down a little bit though.

     
  23.  
    06:04: Hacking 2.0
    Kim Jong

    The global cyberwar that dominated headlines last week shows no signs of abating. Hackers have infiltrated South Korea's nuclear power provider, and posted schematics of nuclear reactors and private personal records online. It's not clear whether the same group that attacked Sony Pictures is responsible.

     
  24.  
    06:00: Howard Mustoe Business reporter

    Morning! Get in touch. Tell us what you think. Email bizlivepage@bbc.co.uk or on Twitter @BBCBusiness

     
  25.  
    06:00: Joe Miller Business Reporter

    Good morning, and festive greetings all round. In a week when the business world is winding down for Christmas, we'll bring you all the news that's sneaking in the back door, and much more besides.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.