Lloyds hit by record £117m fine for tricking its customers

The Times

Lloyds has paid more than £12 billion in compensation to tens of thousands of customers

James Dean and Harry Wilson, City Editor

Lloyds Bank

Lloyds was today fined a record £117 million for mishandling its customers’ PPI complaints, nearly two years after The Times exposed serious failings in the methods used by the country’s biggest high street bank.

The conduct of the bank was “unacceptable”, the Financial Conduct Authority said as it imposed its largest fine on a retail lender.

An investigation by The Times, published in June 2013, found that contractors employed at Lloyds’s largest PPI complaint handling unit were taught how to play the system to the detriment of the bank’s customers.

An undercover reporter also found that customers had been drawn in to one of Britain’s most notorious financial scandals after salesmen working for Lloyds forged information on their loan agreements.

The taxpayer-backed bank responded to today’s fine by saying that it will claw back the bonuses from those senior executives who had ultimate responsibility for oversight of the PPI operations.

António Horta-Osório, the chief executive of Lloyds, has had his annual bonus cut by £350,000 in light of the record fine. Lloyds will withhold £2.25 million from its senior executive team as a result of the PPI failings.

Mr Horta-Osório said: “Whilst our intentions were right, we made mistakes in our handling of some PPI complaints. I am very sorry for this. We have been working hard with the FCA to ensure all customers receive appropriate redress.”

PPI, or payment protection insurance, was meant to help people pay the interest on their loans if they lost their job or fell ill. More than 34 million policies were sold, earning the banks £5.4 billion a year at the height of the boom. In many cases, however, the wide profit margins on PPI products encouraged lenders to sell to people who did not want it or need it.

The Times handed audio recordings and confidential documents gathered from its investigation to the FCA upon request by the regulator.

Georgina Philippou, acting director of enforcement at the FCA, said today: “The Times handed to us the information it collected during its investigation of Lloyds and how PPI complaints were handled. While we had already started looking at this issue, we were grateful for the information and it was considered by the investigating team along with all other evidence we obtained.”

The “settlement” is the largest fine imposed on a retail bank by the Financial Conduct Authority, which the regulator said reflected the scale of the mishandling.

“The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds. Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable,” said Ms Philippou.

Lloyds has paid more than £12 billion in compensation to tens of thousands of customers mis-sold PPI. Today’s fine is not for the mis-selling, but for the way it dismissed a large number of valid claims unfairly between March 2012 and May 2013.

Lloyds said this morning that it “accepts” that part of its complaint handling process led to a “failure to provide fair outcomes for a significant number of customers”.

More than 90 per cent of customers have now received redress, with the rest receiving it by the end of this month, the bank said, adding that the cost of the payments was covered by the provisions it has already set aside.

The fine will raise questions about the £11.5 million of pay awards made to Mr Horta-Osório. He did not work for the bank while PPI was being sold, but the failures in the handling of complaints happened under his watch.

In February the bank announced that it was freezing the release of shares in deferred bonuses that had been awarded in 2012 and 2013 for all members of the group executive committee and for some other senior executives until the conclusion of this investigation by the FCA.

Today Lloyds said it had decided to “make adjustments” to the payments due to the committee and “for some other senior executives in recognition of their ultimate responsibility for oversight of the PPI operations”, resulting in approximately £2.65 million of awarded, but unvested, bonuses being forfeited.

The bank’s remuneration committee has also decided to reduce the group’s bonus pool for 2015 by £30 million as a result of the fine.

The penalty comes two years after Lloyds was fined £4.3 million for delays in making compensation payments to more than 100,000 customers mis-sold PPI policies after the Financial Services Authority, the predecessor of the FCA, found problems with the bank’s processes.

The Lloyds fine will be the largest handed down in relation to PPI, far exceeding the £20.7 million penalty imposed on Clydesdale Bank in April over PPI complaints handling failings.

Britain’s banks have paid out more than £24 billion in PPI compensation payments, making it the country’s most costly financial scandal of modern times and easily eclipsing the less than £2 billion so far paid out over interest rate swaps mis-selling.

After Lloyds, Barclays has made the second largest payouts to customers. The country’s four largest lenders represent about 60 per cent of PPI claims investigated by the Financial Ombudsman Service.

 

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