The Financial Services Authority (FSA) has fined three Lloyds Banking Group firms a total of £4,315,000 for failings in their systems and controls that resulted in up to 140,000 customers receiving delayed payment protection insurance (PPI) redress. The three firms are Lloyds TSB Bank Plc, Lloyds TSB Scotland Plc and Bank of Scotland plc (together, LBG).
Between May 2011 and March 2012, LBG sent 582,206 decision letters to PPI complainants agreeing to pay redress to them. FSA rules state that redress must be paid promptly and, in line with that, LBG aimed to make payment within 28 days of these decision letters. However, a series of failures at LBG meant that not all customers were paid redress within that time frame.
Up to 140,209 customers - nearly a quarter – received payment after 28 days. Around 87,000 customers had to wait over 45 days, 56,000 over 60 days, 29,000 over 90 days and 8,800 over 6 months. Of the total, 24,589 payments inadvertently dropped out of the process and LBG had to take action to ensure the payments were made. The payments were identified as a result of customers calling to chase payment and media attention.
Further, when customers telephoned LBG to enquire about the non-receipt of expected PPI redress payments, deficiencies in its process meant LBG was unable to fast-track the payment to the customer, inform them when payment would be made, or explain why it had been delayed.
During its investigation the FSA found that:
- LBG failed to establish an adequate process for preparing redress payments to send to PPI complainants. It did not plan sufficiently at the outset and its systems were unable to process the very large volumes of PPI redress payments that it needed to make in a timely way;
- LBG staff engaged on the redress process did not have the collective knowledge and experience to ensure that the process worked properly;
- There was ineffective tracking of PPI redress payments. In fact, until 9 March 2012 there was no control at all for the reconciliation of PPI redress payments;
- LBG failed to monitor effectively whether it was making all payments of PPI redress promptly and did not gather sufficient management information to enable it to identify, in a timely manner, the full nature and extent of the payments failings; and
- LBG’s approach to risk management when preparing redress payments to send to PPI complainants was ineffective.
LBG has since completed a comprehensive review of PPI redress payments to ensure that all customers due PPI redress have been paid the correct amount and compensated for any delay in receiving their payment. LBG has paid interest at 8% per annum on the outstanding redress figure where appropriate and has improved its processes to address the failings identified by the FSA.
Tracey McDermott, the FSA’s director of enforcement and financial crime, said:
“The industry let customers down badly in relation to the sale of PPI. The significant volume of complaints is a product of LBG’s own failings and the least customers can now expect is that redress, when it is due, will be paid promptly.
“In short, LBG’s PPI redress payment systems fell well below the standard the FSA expects, and the size of this fine reflects how seriously we view these breaches. All regulated firms must treat those who complain fairly and that includes paying redress promptly when it is due.
“PPI is an area of continuing focus for the FSA and we continue to monitor how firms handle complaints and pay redress.”
LBG agreed to settle with the FSA at an early stage of the investigation and therefore qualified for a 30% discount. Without the discount LBG would have been fined £6,164,327.
Notes for editors
- The Final Notice for LBG.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
- The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013 as required by the Financial Services Act 2012.