Royal Bank of Scotland Faces 900 Million Pound Bill from PPI Claims
Royal Bank of Scotland has issued a warning that it could face an additional 900-million-pound bill for mis-sold PPI (payment protection insurance), as it has been inundated by a wave customer claims.
CYBG plc, a holding company that has ownership of Clydesdale Bank, Yorkshire Bank, Virgin Money UK and the app-based bank B, has similarly warned that it could also face a hefty penalty as last-minute claims begin to pour in.
Mis-sold payment protection insurance has become the UK’s most expensive consumer scandal, as British banks fork out more than 30 billion pounds in compensation for customers who purchased meaningless insurance cover under false information that it could somehow aid in paying back loans should the customer fall ill or become unemployed. Nevertheless, the sum of the compensation that has so far been paid out excludes those made in August and July, so the total could increase quickly as the months progress.
The British government has a 62 percent share in Royal Bank of Scotland. RBS said that the sheer quantity of claims it obtained during last month was considerably more than anticipated: ‘RBS has been implementing the FCA’s policy statement for handling complaints about the mis-selling of PPI since 2011. Under the FCA’s Policy Statement 10/12, the deadline for filing complaints related to the mis-selling of PPI expired on 29 August 2019.’
‘To 30 June 2019, RBS made provisions totalling £5.3 billion for PPI claims of which £4.9 billion had been utilised.’
‘The volume of claims received during August was significantly higher than expected, with a further spike in the final days leading up to the deadline of 29 August 2019. RBS therefore now expects to make an incremental charge for PPI claims, in addition to the provisions recorded to 30 June 2019, in the range of £600 million to £900 million in its Q3 2019 results, which takes into account claims by the Official Receiver. The processing of claims is ongoing and the ultimate provision recognised could be above or below this range.’
‘The estimated range amounts are preliminary and unaudited,’ wrote Alexander Holcroft, the Head of Investor Relations for RBS.
RBS has at present reserved over 5 billion pounds for compensation claims against mis-sold payment protection insurance.
RBS and NatWest suffered technical problems on August 27th after their websites went down for multiple hours. August 29th witnessed further issues with technical issues after complaints from customers described both an inability to submit their mis-sold PPI applications and frozen phone lines.
RBS told the stock market that it anticipates an additional surge of PPI claims from anything between 600 and 900 million pounds in its Q3 results in addition to the 5.3 billion pounds reserved for compensating its customers. RBS pointed out that the handling of PPI claims is an ongoing process, therefore making the total payout amount hard to estimate.
NatWest said: ‘The FCA set a deadline of 29 August 2019 for PPI complaints.’
In the meantime, CYBG also indicated an increase in PPI claims during last month with a surge in the last days. Assessing the damage that PPI claims would have on the finances of the company could take a few months, CYBG said, but it is working on trying to determine a total cost appraisal.
The FCA said: ‘a total of £340.4m was paid in June 2019 to customers who complained about the way they were sold PPI, taking the amount paid since January 2011 to £36bn. FCA figures show the regulator has had more than 5.4 million users access the PPI website. It has received 102,233 calls to its dedicated contact centre. In the past nine weeks since the FCA’s final PPI push went live, the FCA has seen a 449% increase in web users, and 689% increase in calls, compared to the previous nine weeks.’
What is PPI?
PPI or payment protection insurance was created to help customers repay their debts during times of difficulty such as during illness or unemployment.
For a decade after 1990, over 60 million payment protection insurance policies were sold in Britain, with the Financial Conduct Authority revealing that a vast majority of PPI was mis-sold, with more than 30 billion pounds being paid back to customers through compensation.