Lloyds Banking Group PLC (LON:LLOY), Natwest Group PLC (LON:NWG) and other British banks are facing another ‘second wave’ aside from coronavirus in the form of millions of new payment protection insurance (PPI) claims following new court rulings.
Previously, the banks were forced to pay out billions of pounds after being found to have mis-sold millions of PPI policies to their customers, sparking a wave of compensation claims.
The deadline for these passed in August last year, however, the new rulings mean even more people could be eligible.
The latest rulings are concerned with commission paid to banks by insurers that were not disclosed to customers, which often made up around 95% of the policy’s costs in serious cases.
As a result, it means that even if a customer was not mis-sold PPI or has already claimed, they could still receive compensation. New claims could also originate from customers who were denied payments, received partial refunds or never claimed under the previous refund scheme.
Additionally, while customers would previously only receive half the commission paid to the bank as part of PPI claims, the new cases have seen a higher proportion awarded to claimants by judges.
NatWest is currently appealing one of the decisions, but if the rulings are upheld Britain’s banks and their shareholders could face another hit to their profits as a fresh round of PPI claims begin.
Lloyds has already set aside more than £20bn to cover PPI compensation payouts from the previous round of claims, while NatWest, recently renamed from RBS, has set aside over £5bn. Barclays PLC (LON:BARC) has also set aside over £9bn for its own PPI payment pot.
Shares in Lloyds were up 1% at 28p in lunchtime trading on Monday, while NatWest was up 1.9% at 112.7p and Barclays was 1.3% higher at 105.9p.