Banks alleged to have underpaid PPI compensation by £1bn

http://www.theguardian.com/money/2014/jun/05/banks-underpaid-ppi-compensation

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Banks have underpaid compensation for mis-sold payment protection insurance policies to the tune of around £1bn, a report for BBC News claimed on Thursday. The shortfalls reportedly affect credit card customers with Lloyds Banking Group, Barclays, MBNA and Capital One. They come where a policy linked to a credit card has been refunded, but penalty fees and charges incurred on the card as a result of paying for the PPI have not been paid back, so the customer has not been returned to the position they would have been in had they not bought the policy.

More than £22bn has been set aside to repay customers sold PPI policies alongside loans and credit cards although they did not want the cover or the exclusions on the policies meant they could never have made a successful claim. Some customers have received thousands of pounds in premiums and interest. The BBC claimed there were cases where people had not been refunded as much as they should have been. However, it emerged that the broadcaster has not shared its calculations with the Financial Conduct Authority. The FCA has not endorsed the £1bn headline figure. It said: "In some cases a penalty fee may have been incurred for going over a credit card limit regardless of the PPI, in which case we would generally take the view that this charge would not need to be refunded."

The BBC said it was difficult to establish how much compensation the banks concerned had so far avoided paying their customers because "only they have access to the detailed records required for an accurate assessment".

But Cliff D'Arcy, a former banker turned journalist who did the analysis, said he was confident that the shortfall would be in the region of £1bn of extra compensation. His calculations take into account the typical penalty charges on credit cards, the number of users who had PPI, how many of those paid penalties and any interest incurred.

He told the BBC he hadn't expected his estimate of the shortfall to turn out to be so large. "It was only when I got deeper into the numbers that I realised the scale of this problem," he said.

"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."

Barclays told the BBC that it was introducing a new way to calculate fees to replace its previous system, but that it had always met the regulator's rules and had paid out more than the stautory interest rate of 8% to mitigate any differences.

MBNA said that the PPI premium was the last charge to b applied each month, after any fee for someone going over their credit limit, so it was not its practice to refund fees.

Capital One declined to reveal its compensation methodology, but the BBC said the Financial Ombudsman Service had recently instructed the firm to recalculate two cases of compensation to include fees and charges and was investigating how it handled these payments.

Lloyds Banking Group said in a statement: "We are committed to doing the right thing for our customers and this includes ensuring that each PPI case we receive is investigated on an individual basis. When a customer lets us know that they may have incurred other costs because of their credit card PPI policy, we will investigate and make an appropriate refund."

Richard Lloyd, executive director of the consumer group Which? said banks should ensure that customers were getting every penny they were entitled to.

"It adds insult to injury to be mis-sold PPI and then not get paid the full compensation you are due," he said. "If there is new evidence of systematic mistakes by the banks then the FCA should investigate ​and take tough action against any bank found breaching the rules.​"

The FOS said the majority of claims it received about PPI were still about the initial sale of the cover; it said any customer who believed they had not got the refund they were entitled to should go back to their bank and ask it to recalculate the payment.