The priciest banks’ scandal in history

PPI payouts have hit a staggering total of £54billion

PAYMENT Protection Insurance misselling has cost Britain’s banks £54billion so far – more than all the other major scandals combined, according to the New City Agenda think-tank.

Lloyds Banking Group was the biggest seller of PPI policies and it has set aside £22 billion to cover the cost of redress payments. In second place is Barclays, which has £11.1billion of PPI provisions, followed by Royal Bank of Scotland with £6.2 billion. HSBC has allocated £4.1 billion to deal with compensation.

Dominic Lindley, New City Agenda’s director of policy, said the figure could still rise as the banks have until summer to finish processing compensation claims.

Customers can also still appeal to the Financial Ombudsman service if they are unhappy with the size of their payouts.

Even if the banks do not have to set aside additional PPI funds, the scandal still outstrips others comfortably. As an example, Lindley pointed out that the pensions’ mis-selling scandal of the late 1980s and early 1990s cost insurers and financial advisers £11.8 billion, while endowment mortgages cost £2.7 billion.

He said: “At around £54billion we’re getting pretty close to the final figure for PPI and it’s definitely the most expensive scandal in financial history.

“If you look at the other scandals, like pensions mis-selling, interest rates swaps, and endowment mortgages, PPI is bigger than all of them put together.”

The compensation payments are thought to have helped support consumer spending over the past decade, with economists regarding them as an unofficial form of stimulus. According to data from the Financial Conduct Authority, £37.2 billion in compensation was paid to victims of PPI mis-selling between January 2011 and September 2019. Data compiled by Oxford Economics shows that over that period, consumer spending increased by a combined total of £97 billion.

The consultancy said that PPI payments were equivalent to 38.3 per cent of per quarter growth in consumer spending.

Martin Beck, lead UK economist at Oxford Economics, said: “PPI corresponds to increases in consumer spending and is likely to have helped boost it.

“It’s impossible to say with 100 per cent certainty that PPI payments resulted in additional consumer spending.”

Investec chief economist Philip Shaw said: “PPI payments have provided a boost to household incomes and helped support consumer spending, but the degree of that support has waned as the PPI payments from banks have tailed off.”

More than two million people filed PPI complaints with the Financial Ombudsman.