Lloyds Banking Group PLC (LON:LLOY) and Royal Bank of Scotland Group PLC (LON:RBS) led banking stocks lower on Tuesday after a UK court ruling raised the threat of a huge new bill for payment protection insurance (PPI).
Media reports suggested that the ruling could add billions of pounds to the £30bn already paid out in compensation by the banks.
READ: Lloyds first quarter profit boosted by MBNA and lower PPI charges
The case at Manchester county court, involving a couple, Christopher and Joanne Doran, against Paragon Personal Finance, part of Paragon Banking Group PLC (LON:PAG) revolved around the issue of commission paid.
In a ruling on the case, reports noted, the judge said the entire commission should be repaid plus interest, rejecting the Financial Conduct Authority’s (FCA) guidance, leading possibly to new, higher payouts.
The case could see a renewed claims bonanza as it suggests that even if PPI was not mis-sold, the buyer may still be able to reclaim because the scale of the commissions paid were excessively high, although there is likely to be an appeal against the ruling.
Lloyds Bank has so far paid out £18.8bn for mis-selling claims, while RBS has paid out nearly £5bn.
Banks have been relying on a 29 August 2019 “time-bar” on claims, agreed with the FCA, as a way to cap the final cost of what has been the biggest compensation exercise in the UK financial history.
Anyone who has already received compensation for PPI, however, will not be able to reopen their case, or obtain further compensation as they have already had their premiums returned in full.