PPI Provisions Increase – But are they Correct?

Just as schools break up, even the banks result reporting season begins. Reviewing the quantity of media comments with respect to the first bank to proclaim its results, Lloyds Banking Group (LBG), recommends that whoever thinks emptied offices and school holidays are good to “bury bad news” must think again.

Though many media commentators rightly celebrated the banks increase in profits-4% to statutory profit before tax of £2.5bn in first 6 months of 2017- others majorly focused on the rise in provision for preceding mis-selling.

However, the renewed focus isn’t astonishing; the talk amongst financial journalists prior to results release was that ‘mis-selling provision at LBG may rise by £300 or £400m’. Only a few of them guessed that the figure could be as high as it was earlier.

As other banks begin to announce their results, it’s highly possible that LBG results won’t be the only one, as proved by Barclays’ rise of £700m.

But, these two banks won’t be the only ones that are shown to be forward thinking accountable organisations making rational present operational proceeds on the basis of new business activities and culture, but who are still fighting to sort their past sales activities; in terms of expense, customer focus, procedure and volume.

Taking these results into consideration, it isn’t astonishing that major banking groups had been/are positively behind the FCA’s proposals to shut down future PPI claims.

Nevertheless, unexpected additional provisions in these amounts just show how wrong all the earlier ones were. Such rise simply shows that the banking sector didn’t and doesn’t know the entire extent of the issue.

It isn’t completely fair to blame the banks for the inaccuracy in the last provisions, since they all need to dig out information from legacy systems intricate by the fact that most of the sales were originated by “acquired” business. At times, it’s merely the fact that the watchdog is asking wrong questions, thus, receiving wrong answers.

But, if the banking sector itself can’t precisely envisage its liabilities, then it isn’t astounding that the watchdog can’t either. Also, in response to Freedom of Information Act requests, FCA wasn’t able to confirm the sum total of PPI premiums written and verified that it didn’t hold any data offering a breakdown in regards to the amount of mis-sold premiums returned as opposed to the amount paid to consumers that comprise of statutory and account interest.

It’s been advised that only around half of the mis-sold PPI premiums have been repaid. This conclusion is based on the foreseen gross premiums written, but taking into account the fact that nearly half of the amount comprises of account and statutory interest.

So, it isn’t surprising that Martin Lewis of moneysavingexpert.com has stated, “The PPI deadline is a mistake”. Also, the BBC website shows that banks have set aside roughly around £40bn, yet that’s grossly off the mark as it involves account and statutory interest.

FCA has proposed a major “deadline” media campaign, but if the extent of the issue is not known and the present progress is not understood, then it isn’t possible to scrutinise the failure or success of the campaign.

If truth be told, it’s looking highly possible that the time bar decision would be reviewed and it’s becoming increasingly evident that judges are fully prepared to overturn the decision made by the government, stepping forward to protect customers; as witnessed by the latest overturn of charges for tribunal hearing in employment cases.