Lloyds bank uses loophole to shortchange PPI claimants

File photo dated 04/08/10 of a sign for Lloyds Banking Group, who will today pledged that 40% of its top 5,000 jobs will be occupied by women within six years. PRESS ASSOCIATION Photo. Issue date: Monday February 3, 2014. The planned increase from the current level of 28% is among a series of commitments being made by chief executive Antonio Horta-Osorio. They also include a pledge to boost net lending to small and medium-sized business by more than ?1 billion this year and the support of more than 80,000 first-time buyers, up from last year's target of 60,000. See PA story CITY Lloyds. Photo credit should read: John Stillwell/PA Wire

%VIRTUAL-SkimlinksPromo%Lloyds has been accused of cutting its compensation payments for mis-sold payment protection insurance (PPI) by exploiting an obscure loophole.

Lloyds Banking Group stands accused of 'mis-paying' PPI compensation by unfairly reducing the settlements paid to claimants.
The widespread mis-selling of payment payment insurance (PPI) is Britain's biggest financial scandal so far this century.

Justice for those flogged inappropriate policies appeared to be upon us, with millions claiming compensation (averaging £2,750 each) for mis-sold PPI policies. Banks have put aside over £22 billion to meet these claims, which exceeded £5.4 billion last year alone.

But it has now emerged that Lloyds has been short-changing compensation claimants.

Exploiting 'alternative redress'

Using an obscure legal loophole that has been agreed with the Financial Conduct Authority (FCA), Lloyds has been sharply cutting PPI compensation payouts to thousands of claimants.

The loophole, known as 'alternative redress', works like this: Lloyds calculates the correct PPI compensation due under FCA guidelines. For mis-sold single-premium policies, Lloyds then calculates the total premiums due for a similar monthly-premium policy. The bank then subtracts this deduction for monthly premiums and makes reduced payouts to claimants.

Essentially Lloyds is reducing compensation to PPI claimants by using the argument that the only thing wrong with their existing policies is that they were written as a single premium (which makes this protection much more expensive).

The bank is arguing is that, apart from selling a single-premium policy, all other aspects of these PPI sales were completely above board. It claims that every single one of these alternative-redress customers would have definitely bought monthly-premium PPI policies had these been on offer.

By taking this stance, Lloyds does two amazing things. First, it reads customers' minds to conclude that each and every one of these claimants would surely have bought (cheaper) monthly-premium policies. Second, it assumes that all of these sales were squeaky clean, despite institutionalised mis-selling of PPI right up until recent years.

In some cases, Lloyds is wrongly using alternative redress to reduce PPI compensation payouts by £1,000 or more. Whatever the true scale of this tactic, it is short-changing Lloyds customers by many millions of pounds a year.

What's interesting is that the Financial Ombudsman Service (FOS) seems to disagree entirely with Lloyds' stance on using alternative redress. According to figures obtained from claims management companies, the FOS has overturned 100% of alternative-redress payments made by Lloyds.

In other words, every single alternative-redress case we know of has been thrown out, with Lloyds ordered to make full payment to each and every claimant caught by this sneaky ruse.

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How big is this new rip-off?

As a PPI expert who worked in this industry from 1991 to 2002, I was approached by the BBC to dig deeper into this story. The resulting programme - PPI: Britain's Biggest Banking Scandal - airs on BBC
Radio 4 at 8pm tonight (Tuesday 25th March) and will be on iPlayer for a few days afterwards.

Using industry data, plus figures supplied by the PFCA (the Professional Financial Claims Association, a trade body representing claims management companies), I worked out that Lloyds had used alternative redress to deprive PPI compensation claimants of an estimated £67 million in the past 12 months.

Lloyds has been using alternative redress to reduce PPI payouts since February 2013, so it has used this loophole to reduce payouts to tens of thousands of customers in the past 14 months. In some months, the PFCA estimates that one in four Lloyds PPI payouts (25%) were reduced using alternative redress.

Lloyds denies using this tactic so extensively, but admits that thousands of customers have had their payouts cut by applying alternative redress.

Lloyds breaks ranks with other banks

Over the past three years, Lloyds has increased its reserves for PPI compensation payouts six times.
At present, Britain's biggest high-street bank has set aside over £9.8 billion to meet these claims.
With PPI compensation producing multi-year losses for the bank, Lloyds is clearly desperate to consign its PPI mis-selling to history.

Yet the bank is using alternative redress on a scale not seen at any other bank. My estimate is that Lloyds is using this loophole to cut payouts at least five times more often than other banks are.

Lloyds' response to this new scandal has been remarkable, given the scale of this exposé. It denies that it is abusing alternative redress to unfairly and wrongly reduce the compensation to which PPI claimants are entitled. Nevertheless, it told the BBC that one in nine PPI offers (11%) it made in the last three months of 2013 applied alternative redress to reduce payouts.

What should you do?

In typical cases, Lloyds' use of alternative redress has reduced compensation payments by a third.
However, to our knowledge, the FOS is overturning every one of these cases put before it, increasing final payouts by as much as half (50%).

My advice to PPI compensation claimants is simple. If you have received a PPI compensation payment from Lloyds (or one of its subsidiaries) since January 2013, then dig out your paperwork.
Check this very carefully to find any deductions from the top-line figure. If Lloyds has used alternative redress to reduce your payment, then contact the bank before making a formal complaint to the Financial Ombudsman Service.

It is highly likely that the FOS will overturn Lloyds' decision and award you higher compensation.

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Lloyds bank uses loophole to shortchange PPI claimants
Once you have opened a current account with a bank or other lender, you will get a steady flow of emails, letters (and maybe phone calls) offering you a savings account, loan, mortgage, ISA etc to go with it. But while it may be tempting to have everything in one place, it's better to do the legwork and shop around for the best financial products. You can compare interest rates on loans and savings accounts in the 'best buy' tables in the newspapers, or look online on comparison sites. Remember you can still easily transfer your money between accounts, even if they are not with the same financial institution. 
Whether you want to apply for a new mortgage or refinance an existing one, your bank will probably be very happy to give you an instant quote in the hope that you will go with them. They may not tell you that you can shop around at other lenders. A mortgage broker can give you an overview of the best interest rates on offer, and might be able to cut you an even better deal him/herself. 

Want to cash in your jars of change that are sitting on your shelves at home? Many banks are not very keen on coins. They often only take it from their own customers. You will have to sort it into different denominations and put the coins in the bank's bags in set amounts (for example, £1 for coppers, £5 for silver, etc). Some banks only take a limited number of bags a day, or won't take any at busy times. Others take a different view: HSBC has free coin deposit machines in many larger branches where you pour your jar of coins into the machine and it counts them and automatically credits your account. Barclays, NatWest and RBS also have machines in large branches in city centres.

Bank employees now have a duty to point out that they only advise on the bank's products and don't offer independent financial advice. What they won't tell you is that even the advice they give you about the bank's own products should be treated cautiously. Bank staff are often undertrained, underpaid and overworked. (You could ask for the employee's qualifications before getting advice.) So do your own research and/or find an independent financial adviser.

Nothing is set in stone. Your bank won't tell you this, but sometimes it will waive a fee, for example an overdraft or an ATM fee, depending on the circumstances. You have nothing to lose by asking, if you can argue persuasively why they should waive the fee. Citizens Advice says your bank should treat you sympathetically if you can show financial hardship.

As stated in the previous slide, some things are negotiable – such as interest rates or waiving fees – if you can make a good case for it. In that instance, talking to an employee in person is better than filling in a form online.

If your account is overdrawn and you get paid, your bank could use this money to pay off your overdraft without your permission. However, you have a right to ask them not to do this so you can pay your rent or mortgage first. This is called first right of appropriation. You have to ask your bank in writing, and you'll need to write to them with new instructions every time money gets paid into your account. Make sure you write 'first right of appropriation' in your letter.

If money is mistakenly credited to your account, your bank or building society can recover the money, assuming they do this within a reasonable time. But you may be allowed to keep the money, for example if you didn't realise the bank had made a mistake and spent the money in good faith. You would have to prove that you spent it in such a way that it would be unfair to ask you to pay it back. You can complain to the Financial Ombudsman if you think your lender is being unfair in asking you to repay the money.


If you do have to pay it back, you could try to reach an agreement with your bank to pay it back in instalments without interest being added.

The Financial Ombudsman Service has more advice on what happens when payments have been credited to the wrong account. If you did something wrong - for example, by entering the wrong account number - rather than the bank, the Financial Ombudsman may still uphold your complaint. They consider whether the financial institution made it clear to the consumer that only the bank sort code and account number are used to process the payment, rather than the name of the payee. They will also ask whether the lender should have realised that the consumer had made mistake, and once the problem came to light, did the firm take reasonable steps to try to get the money back from the recipient.

If too much is deducted from your account, your lender may have to refund the full amount of the payment. For example, if the money is taken through a direct debit or credit card payment for a hotel room or car rental. When deciding whether the debit was reasonable, the bank or building society will take into account your previous spending pattern. But the bank doesn't have to refund the payment if you agreed the amount beforehand or were informed of the payment by your lender at least four weeks before.

If you don't have enough money in your account to cover a direct debit payment, your bank may not make the payment. It doesn't have to tell you that the payment hasn't been made, so the onus is on you to keep checking your account. If, on the other hand, the payment goes through, you may be charged for an unauthorised overdraft.

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