Britain’s largest banks expected to set aside hundreds of millions of dollars to compensate customers that were the alleged victims of mis-selling. As of the end of July, the Big Four Banks reportedly had budgeted at least $20.2 billion (the figure was converted from pounds) to pay back clients that were mis-sold insurance policies. Lloyds Banking Group (LLOY) and Barclays (BCS) are among the institutions needing to pay such provisions.
According to the Financial Conduct Authority, in April and May both, banks across Britain paid just over $642.6 million in compensation. This is a significant jump from February, when they paid $625.7 million and in March when the amount as $573.75 million U.S. dollars.
Borrowers bought payment protection insurance (PPI) policies, which were supposed to guarantee that they could pay back loans if they were no longer able to work or became unemployed. That said, the policies were purportedly sold to customers that either would not have been able to avail of the coverage because they were either on benefits or self-employed or people that didn’t want to be covered.
Recently, Britain’s high street banks have been involved in another scandal involving seven million people who paid for identity protection and credit policies. (The card protection is supposed to provide coverage to help replace or cancel lost or stolen cards.)
13 banks and credit companies, including Royal Bank of Scotland (RBS), HSBC, Barclays, Capital One, Morgan Stanley (MS), and Santandera, are said to have been involved. Compensation is estimated at about 1.3 billion pounds. Letters will be sent to the customers that were impacted at the end of the month.
The FCA says that those that bought the coverage were issued unclear and misleading information about them so that the purchase was either something they didn’t need or the risks presented to them for why they needed the policy had been exaggerated. Some 23 million policies were involved. The high court must still approve the compensation plan.
Shepherd Smith Edwards is a securities fraud law firm that represents investors seeking to recoup their losses.
Battered banks face huge extra payouts: Mis-selling bill keeps rising to dash hopes of end to crisis, Mail Online, July 29, 2013
UK banks agree to pay for latest mis-selling scandal, Reuters, August 22, 2013
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