The Financial Conduct Authority (FCA) has issued its largest ever retail fine (£117m) to Lloyds Bank Plc, Bank of Scotland Plc and Black Horse Ltd (together Lloyds) for failing to treat their customers fairly when handling Payment Protection Insurance (PPI) complaints between March 2012 and May 2013.
During the relevant period Lloyds assessed customer complaints relating to more than 2.3 million PPI policies and rejected 37 percent of those complaints.
Firms are required to assess complaints impartially and can reject unfounded claims.
In March 2012, Lloyds issued guidance instructing complaint handlers that the overriding principle when assessing complaints was that Lloyds’ PPI sales processes were compliant and robust unless told otherwise (the Overriding Principle).
In addition, Lloyds did not notify complaint handlers of known failings identified in its PPI sales processes during the relevant period.
Some complaint handlers relied on the Overriding Principle to dismiss customers’ personal accounts of what had happened during the PPI sale or to not fully investigate customers’ complaints. In some instances, Lloyds did not contact customers to enable them to give their account of the sale.
As a result of Lloyds’ misconduct, a significant number of customer complaints were unfairly rejected.
Georgina Philippou, acting director of enforcement and market oversight at the FCA said:
“PPI complaint handling is a high priority issue for the FCA. If trust in financial services is going to be restored following the widespread mis-selling of PPI, then customers need to be confident that their complaints will be treated fairly.
“The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds. Customers who had already been treated unfairly once by being mis-sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable.”
Examples of how customers lost out as a result of Lloyds’ failings included that:
- Complaint handlers justified the decision to reject customers’ complaints on the basis that the sales process used by Lloyds was robust, when Lloyds knew there were significant sales process failures and mis-selling.
- Some customers whose complaints were rejected were told that their complaint had been ‘fully investigated’ with ‘appropriate weight and balanced consideration [given] to all available evidence’, when this was not the case.
- When assessing a customer complaint, the customer’s account of what had actually happened at the time of the sale was not always considered in a balanced way.
- Due to poor customer contact processes, some customers may not have had an opportunity to provide further evidence needed for complaint handlers to reach a fair outcome for their complaint.
As a result of a substantial decline in the proportion of complaints upheld between March 2012 and October 2012, the FCA’s predecessor, the Financial Services Authority (FSA), began investigating the way Lloyds was handling PPI complaints. Following the FSA’s intervention Lloyds removed the Overriding Principle from its PPI complaint assessment process and provided information on all sales process failings to complaint handlers.
Lloyds has made significant progress towards the fairer treatment of customers in its general complaint handling operation and has established an extensive remediation programme to re-review or automatically uphold approximately 1.2 million PPI complaints, including those within the relevant period. Lloyds has set aside a total of £710m to cover any redress due to affected customers. Customers do not need to take any action. Those affected and due redress are being contacted directly. The FCA has appointed an independent skilled person to oversee the remediation process.
Lloyds announced in February 2015 that it had decided to freeze the release of shares in respect of deferred bonus awards from 2012 and 2013 for all members of the Group Executive Committee and for some other senior executives as a result of the FCA’s Enforcement investigation.
Lloyds agreed to settle at an early stage of the investigation and therefore qualified for a 30 percent discount. Were it not for this discount the FCA would have imposed a fine of £167,758,035.
Notes to editors
- The Final Notice for Lloyds Banking Group[1].
- Examples of how Lloyds’ misconduct affected actual customers[2].
- Between January 2011 and March 2015 a total of £19.2bn was paid out across the industry to consumers who complained about the way they were sold PPI. As at 31 December 2014 Lloyds had made a total provision of £12.025bn in relation to the mis-selling of PPI.
- On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA[3].