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* Daniels says about half of PPI complaints are false
* Daniels says most customers buying PPI got good value
* Ombudsman data shows Lloyds loses 98 pct of cases
* Lloyds has set aside 5.3 bln stg for compensation
By Matt Scuffham
LONDON, Feb 14 (Reuters) - The former head of Britain'sbiggest retail bank said the majority of insurance policiestaken out on loans and mortgages were not mis-sold, blamingfalse claims for the rising bill for banks paying compensation.
Eric Daniels, chief executive of Lloyds between2003 and 2011, said banks had paid out on some claims fromcustomers who did not even have payment protection insurance(PPI) because they could not cope with the number of complaints.
"A fair number of bogus claims were paid out because thenumber of claims were so overwhelming that banks could notanalyse whether or not they were genuine or not," he told apanel of lawmakers on Thursday.
Banks are facing a bill of over 12 billion pounds ($18.7billion) to compensate customers wrongly sold policies meant toprotect borrowers who lost jobs or became ill, and industrysources have told Reuters they expect the number to double.
Daniels said he believed around half of PPI claims were"completely illegitimate".
Commission Member Andrew Turnbull, a former head ofBritain's Civil Service, had countered that fraudulent claimswere "irrelevant" in the context of the wider mis-selling.
PPI is the most complained-about financial product ever inBritain, with the financial ombudsman service having receivedmore than half a million cases.
However, Daniels told the Parliamentary Commission onBanking Standards that the product solved a "fundamentalcustomer need" and that PPI was a "very competitive product."
"I believe that customers did know what they were buying.They got good value. In those cases where they were mis-soldproducts, that clearly is wrong, but that's not the majority inmy view," he said.
Lloyds, which has 6,000 staff dealing with claims, said inNovember that it had set aside another 1 billion pounds tocompensate customers mis-sold PPI, taking its total provision to5.3 billion pounds, by far the highest in the industry.
Yet Daniels defended Lloyds' past sales practices.
"I believe Lloyds always tried to impose the higheststandards and embraced the principle of trying to treat thecustomer fairly. We took extraordinary steps to ensure wetrained our people well," he told the commission.
Banks have blamed claims management firms, which take achunk of their clients' compensation in return for handling thepaperwork, for peddling false claims, although data from theombudsman does not back that up.
The ombudsman said that, of the 158,000 complaints itreceived in its last financial year, less than 6,000 wereerroneous. It also said 98 percent of complaints against Lloydswere upheld in favour of the customer, the highest of any bank.
Lloyds opened the floodgates to a wave of claims when it setaside 3.2 billion pounds for PPI compensation payouts in May2011, after Britain's banks had lost a landmark court case.
Daniels was criticised by Lloyds' shareholders for leadingthe bank into a takeover of ailing rival HBOS at the height ofthe financial crisis.
The ill-fated deal saddled conservatively run Lloyds withhuge losses on commercial and retail loans and led to a 20billion pound state bailout which led to taxpayers taking a 40percent stake in the bank.
