Rising PPI claims exceeding banks' expectations

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The deadline - of August 29th 2019 - was set in March, and since then both banks have seen their PPI compensation losses increase.

Lloyds set aside an extra £700 million in the second quarter of 2017, while Barclays have written off the same amount, with both banks admitting that these sums exceeded their expectations.

And given that as many as 40 million eligible people still haven't lodged a PPI claim, it's possible that the approaching deadline will mean that payouts will only increase in the future.

Millions and billions

According to Lloyds Banking Group's financial results for the first half of the year, the bank set aside an extra £1.05 billion for PPI compensation, of which £700 million was ringfenced in the second quarter alone.

They wrote that such amounts "remain above the Group's previous provision assumption", indicating that the UK banking industry has been caught unawares by the scale of its own misconduct, or at least by the scale of the public's readiness to do something about it.

This impression is bolstered by Barclays' H1 results, which also disclosed an additional £700 million for PPI claims in Q2 2017, and which admitted that this figure reflects "higher than expected complaints flow in the year to date".

Despite both banks being wrong about how much compensation they were likely to have to pay out over past months and quarters, their reports nonetheless see them unsurprisingly continuing to make assumptions about how much they'll pay out in total until the August 2019 deadline passes.

Lloyds, for example, state that their total PPI payout fund of £2.65 billion is "consistent with total expected complaint volumes of 5.3 million ... with approximately 1.2 million still expected to be received including approximately 9,000 reactive complaints per week through to August 2019".

Barclays, for their part, are a bit more modest about their remaining total provision of £2.1 billion. They admit, "As at 30 June 2017, the provision of £2.1bn represents Barclays' best estimate of expected PPI redress. However, it is possible the eventual outcome may differ from the current estimate".

More to come

However, in light of how FCA estimates put the total number of PPI policies sold at anywhere between 52 million and 64 million, it's a possibility that the deadline will only cause complaint numbers to increase further in the coming months.

This is all the moreso given that only something in the order of 12 million compensation claims had been made by the end of 2015 (when a comprehensive tally was last made by the National Audit Office), suggesting that a maximum of four out of five people potentially due compensation haven't yet done anything.

They may indeed be driven to act by the fact that the FCA are planning "a two-year consumer communications campaign, which will be launched in August 2017".

Since this two-year campaign is due to begin next month, it's reasonable to expect that compensation applications will rise further soon after, once again putting banks such as Barclays and Lloyds at risk of having their projections caught short.

And this will only place further strain on both banks' profits, which in the case of Barclays UK saw a 41% decrease before tax to £634m, largely because of the increase in PPI payments.

Even more to come

And there is one final thing that could bump up the amount of PPI compensation being paid out in the near future. This is the application We Fight Any Claim made for a judicial review of the August 2019 deadline.

If the claims management company's application fails (which it most likely will), and the deadline stays in place, then they and similar firms will step up their marketing drives to encourage members of the public to make a claim.

They are responsible for as many as 80% of PPI claims, yet what many customers don't know is that they are in fact able to apply for compensation for free by themselves, via their bank and the Financial Ombudsman.

This, hopefully, will be something the FCA inform the public of when they begin their publicity campaign next month. Similarly, it's to be hoped that those bank customers who are owed compensation finally step forward and make their claims, rather than let the big high street banks escape full responsibility for one of the biggest mis-selling scandals in recent history.

Yet given that the amount of money being set aside by banks such as Barclays and Lloyds is increasing, it would seem that they already are stepping forward.