MPs raise concerns about second attempt to compensate victims of bank fraud

An influential group of MPs has expressed fears that a second attempt to compensate victims of a massive bank fraud will fail to deliver a fair outcome for victims who have suffered hardship.

The All Party Parliamentary Group on Fair Business Banking (APPG) and the SME Alliance said they had “significant concerns” about the re-review scheme responsible for providing fair compensation for HBOS Reading fraud victims.

The All Party Parliamentary Group on Fair Business Banking (APPG) and the SME Alliance said they had “significant concerns” about the re-review scheme responsible for providing fair compensation for HBOS Reading fraud victims.

Last year, an independent report found that the original scheme to compensate customers caught up in a quarter-of-a-billion pound scam at a HBOS branch in Reading had “serious shortcomings”.

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Sir Ross Cranston, a law professor at the London School of Economics, said that Lloyds, which took over HBOS in 2008, must go back to the drawing board and re-assess customers’ compensation claims.

The APPG and SME Alliance said that, after engaging with Lloyds Bank and the Foskett Panel, the body responsible for determining loss and compensation, they believed that the current approach is being too narrowly defined.

The MPs said this approach excluded certain complainants and was too legalistic and arbitrary “and that this may also augur badly for the fair assessment of damages”.

The statement said: “This is a direct contradiction of the ‘common sense approach’ as required by Sir Ross Cranston, who led the formal inquiry that delivered a damning assessment of the original Lloyds Bank Customer Review Scheme.”

The SME representative bodies said they are very concerned that complainants may opt in to the process “unaware that they will not have a realistic expectation of compensation, yet will have signed away their rights to other routes for redress”.

The concerns raised in correspondence and meetings with the bank and the Foskett Panel include claims the bank is refusing to make hardship payments to vulnerable customers, “many of whom have had to endure years of mistreatment, fraud and deception by the bank”.

The statement added: “The APPG and SME Alliance believe that their reasonable concerns are being ignored, despite the clear requirement that this process should move forward only after agreeing the arrangements with key stakeholders.”

The APPG - which is chaired by Kevin Hollinrake MP - said it had raised similar concerns over a number of years about the fraud itself and the "flawed nature" of the original compensation scheme.

A spokesman for Lloyds Banking Group said: “We are extremely sorry to all the customers who were impacted by the crimes committed at HBOS Reading.

“The group’s intention has always been, and remains, to provide fair and generous compensation to those impacted by the fraud.”

The Lloyds spokesman added: “We are pleased that Sir David Foskett and his panel have invited customers to opt into the re-review and will shortly begin assessing customer cases, to look again at the assessment of any direct and consequential losses that flowed from the HBOS Reading fraud.

“The methodology for the re-review was determined by Sir Ross Cranston and the re-review panel published its methodology, after consultation with all stakeholders, in early July.”

"We understand that Sir David has made the panel’s position on the points raised by APPG and SME Alliance clear directly to them and as such it is not appropriate for the bank to add anything further.”

"We are committed to continue co-operating fully with the Panel as their Re-review progresses.”

A spokesman for the panel said: “The re-review panel’s remit is to implement the recommendations of Sir Ross Cranston, re-assessing possible direct and consequential losses arising from the IAR fraud.”

The spokesman added: “The IAR Fraud, as defined by the FCA and Sir Ross, refers to the fraudulent activity perpetrated through the HBOS Impaired Assets unit based out of Reading and Bishopsgate and Quayside Corporate Services Limited and/or associated companies and individuals as demonstrated in the criminal trial in 2016 to 2017.

“This is clearly set out in the panel’s methodology, published on its website in early July, following extensive consultations with APPG on Fair Business Banking and the SME Alliance.”

The spokesman said the panel rejected “in the strongest possible terms” claims that it has unilaterally restricted the re-review process or that it is interpreting Sir Ross’ recommendations in a narrow way.

The spokesman added: “It remains the panel’s overriding objective to consider any customer’s case through a non-legalistic and fair process and to make decisions in a generous, fair and common-sense manner.”

"If customers have any questions about the remit of the Re-Review process then they are encouraged to get in contact with the Panel directly via the details on the website."

In 2019, Sir Ross Cranston, a law professor at the London School of Economics, said that Lloyds, which took over HBOS in 2008, must go back to the drawing board and re-assess customers’ compensation claims.

An initial review of how to compensate victims was led by another academic, Russel Griggs.

Sir Ross said that parts of that customer review were good. He especially praised “generous” awards paid out to customers for distress and inconvenience.

But, he added: “Despite the merits of the customer review, I have concluded that it had serious shortcomings. The most serious shortcoming concerned the bank’s approach to assessing direct and consequential loss caused by the criminal misconduct.”

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James Mitchinson