LONDON (Alliance News) - Shares in top London-listed banks are trading lower on Monday, following a report in the Sunday Times that they are bracing themselves for potential multi-billion payouts over commissions linked to payment protection insurance.
The bill for the payment protection insurance scandal has already cost banks in the UK close to GBP30 billion. The products, which were widely mis-sold to borrowers, were meant to provide cover in the event of injury or illness. It was often the case that borrowers did not need the PPI sold to them.
Barclays PLC, HSBC Bank PLC of HSBC Holdings PLC, Lloyds Banking Group, and Royal Bank of Scotland Group PLC all used their interim results to warn about potential consequences of a ruling by the UK's Supreme Court in November 2014. Barclays was down 0.5% on Monday, HSBC down 1.6%, Lloyds down 1.7% and RBS down 1.6%.
Joseph Dickerson, an analyst at Jefferies International Ltd, told Alliance News it seemed as though weakness in the banks' shares came on the back of the Sunday Times report.
"Several banks have highlighted this case as a further risk. It is nearly impossible to quantify the magnitude of any claims that may or may not arise," Dickerson said.
The case in question was brought by Susan Plevin over a policy sold in 2006. Plevin borrowed money and took out payment protection insurance with the insurer used by Paragon. According to the Supreme Court, 71.8% of the GBP5,780 PPI premium was taken in commission. Plevin was not told which companies were taking commission, nor how much commission was being paid. The broker retained GBP1,870 and Paragon retained GBP2,280.
The Supreme Court rules that the non-disclosure of commissions and the identity of the recipients made Plevin's relationship with Paragon unfair under the UK's Consumer Credit Act.
The UK's Financial Conduct Authority, which regulates the banks and acts as a consumer watchdog, is giving thought to the ruling's implications.
On May 27, the FCA said it was "considering whether additional rules and/or guidance are required to deal with the impact of the Plevin decision on complaints about PPI".
The regulator expects to report its views by the end of the summer.
http://www.thesundaytimes.co.uk/sto/business/Finance/article1591132.ece
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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