UK banks insurance mis-selling bill rises again

British banks paid out more to compensate customers mis-sold loan insurance in January than the month before, reversing a declining trend and pointing to a higher final bill than banks have so far allowed for.

The Financial Services Authority (FSA) said yesterday banks paid out £439 million (€500 million) in January to customers wrongly sold payment protection insurance (PPI), up 22 per cent on December and the first rise since October.

The payouts brought the industry’s bill so far to £8.9 billion. PPI was meant to protect borrowers against sickness or redundancy, but was often sold to customers who did not want or need it, or who were ineligible to claim.

Banks have so far set aside £14 billion to compensate customers and industry sources have said they think the final bill could top £20 billion.

Natalie Ceeney, who is dealing with complaints as head of the Financial Ombudsman Service, this week said banks could be paying out to customers for years to come.

PPI has become the biggest mis-selling scandal to hit UK banks and they have repeatedly underestimated the scale of the problem. Britain’s biggest retail bank, Lloyds Banking Group Plc, has set aside £6.8 billion for PPI compensation. Barclays Plc has set aside £2.6 billion.

In its annual report yesterday, Barclays said it had processed 1.1 million claims from customers. It said the number of complaints it received had declined since its peak in May 2012, but the rate of decline had been less than expected.