Lloyds braced as mis-selling bill continues to rise

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Lloyds Banking Group is expected to set aside hundreds of million pounds more to compensate customers mis-sold loan insurance, potentially taking its overall bill for Britain’s costliest consumer scandal to £12bn.

Lloyds, which is 25 per cent owned by the tax payer, has already set aside £11.3bn to pay customers mis-sold payment protection insurance (PPI), more than any other bank. The policies were meant to cover repayments if customers fell ill or lost their jobs, but were often sold to people who did not need them or would be ineligible to claim.

Lloyds took a £900m PPI charge at the time of its third-quarter results in October and warned its bill would rise by another £600m if complaint levels stayed at the same level in the fourth quarter.

Since then, complaints about PPI across the industry have shown no sign of abating.

Data from Britain’s financial regulator showed that £376m was paid out by the sector as a whole in October, up 7.4 percent on the average payout in the previous three months.

Analyst Mike Trippitt at brokerage Numis has forecast Lloyds will take a further £500m hit for PPI mis-selling for the fourth quarter of 2014.

Lloyds is set to detail the extra charges when it reports 2014 results on February 27. Other banks are also likely to increase their provisions when they report full-year results, adding to a total bill for the industry of about £24bn.

Barclays has so far set aside £5bn, Royal Bank of Scotland £3.3bn and HSBC £2.5bn.

Complaints have declined since their peak in 2012 but not as fast as banks had been expecting.

Spanish bank Santander’s British business set aside another £30m for compensation on Tuesday, taking its overall bill to £846m.

Nathan Bostock, chief executive of Santander UK, said the bank had enough set aside to cover compensation for the next 17 to 18 months if complaints continue at their current level.

The Financial Conduct Authority said on Friday it would consider imposing a deadline on customers claiming compensation, potentially enabling banks to draw a line under the issue.