Lloyds faces £3.6bn payback bill customers wrongly sold insurance

The news overshadowed better- than-expected first quarter profits at the bank, which is 40 per cent owned by the taxpayer after the 2008 banking crisis.

Lloyds saw a surge in compensation claims for PPI mis-selling in February and March, fuelled by aggressive advertising from claims management companies, which take a cut of the payout. Claims slowed down in April when consumer groups warned people about using claim firms.

Lloyds’ chief executive Antonio Horta-Osorio said bogus claims were driving up its costs and urged customers to approach Lloyds directly.

“This puts enormous strains on banks because we have to process all complaints. I would advise customers to come directly and avoid paying a third of their money back to claims management companies,” he said.

Mr Horta-Osorio said that one in four claims made by claims management companies were on behalf of people who did not even have a PPI policy with Lloyds.

The banking sector is already facing a bill of over £7bn from one of the country’s biggest ever mis-selling scandals. Lloyds set aside £3.2bn last year, which analysts said was conservative.

Lloyds, which owns the Halifax brand, was pushed to a £3.5bn loss in 2011 by the PPI mis-selling scandal.

Mr Horta-Osorio said Lloyds’ share of provisions for PPI mis-selling was bigger than its share of the retail market and he criticised the bank’s former decision to sell it.

“What happened was unacceptable,” he said. “Lloyds and HBOS sold this product for too long and with too much intensity. That is why I stopped it as soon as I became chief executive.”

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