05 June 2015
Lloyds Banking Group (‘the Group’) has reached a settlement with the Financial Conduct Authority (FCA) totalling £117 million with regard to aspects of its Payment Protection Insurance (PPI) complaint handling process during the period March 2012 to May 2013 (‘the Relevant Period’).
The Group apologises for the impact on those customers affected and accepts that part of its complaint handling process led to a failure to provide fair outcomes for a significant number of customers. Although the FCA has not found that the Group acted deliberately, the Group has reviewed all customer complaints fully defended during the Relevant Period. This review has been completed and over 90 per cent of customers have received payment and the remainder will be completed by the end of June. The remediation costs of reviewing these affected cases are not materially in excess of existing provisions.
PPI Judicial Review and Complaint Handling Process
In 2011 the Group was the first to withdraw its support for the industry’s judicial review of the FCA’s policy statement on PPI complaint handling and, as a result, took the lead in beginning to pay redress to customers complaining that they had been mis-sold PPI.
In order to provide appropriate redress, the Group had to build significant operational infrastructure and processes at pace to meet the demands, with 7,000 people processing these complaints. Nearly one-third of complaints were found upon investigation to have had no PPI policy with the Group. At its peak in 2012, up to 60,000 complaints were received per week.
Throughout the Relevant Period we upheld complaints and paid redress to around 63 per cent of customers who had a PPI product and who complained. But during this period mistakes were made. In order to move quickly to resolve the unprecedented number of complaints within the FCA timescales (including a significant quantity which upon investigation were shown to have no PPI policy), we needed a clear and simple approach to deliver fair customer outcomes. As part of the broader complaint handling process complaint handlers were guided to assume that our PPI sales processes were compliant unless they were notified to the contrary. We did not do enough to tell complaint handlers where they should not rely on this assumption.
In 2013 we reviewed our processes and procedures. We also engaged closely with the FCA throughout to ensure remediation of all potentially impacted cases in the Relevant Period.
The Group has cooperated fully with the FCA in this investigation. In addition, the FCA has acknowledged that the Group decided at an early stage not to appeal the High Court decision and was the first bank to “…make clear they would implement the Authority’s changes for PPI complaint handling.” Credit is also given for having “…spent significant sums instructing third parties to assist it in the remediation of customers who have been treated unfairly.”
The FCA also acknowledges that since 2011 the Group has made “…significant progress towards the fairer treatment of customers in its general complaint handling operation, in particular within its retail banking business.”
Lord Blackwell, Chairman of Lloyds Banking Group said:
“We accept the FCA’s findings and apologise to those customers who were impacted. Since 2011 the Group has made significant progress to strengthen the business. We are trying to get it right for our customers and to rebuild trust. But we do not get everything right. That means when we make mistakes, we will take responsibility for them. This is what we have done here. The Board remains fully committed to ensure everyone at Lloyds Banking Group puts customers at the heart of our business.”
António Horta-Osório, Group Chief Executive of Lloyds Banking Group, said:
“In 2011 Lloyds led the industry in starting to redress customers who had been mis-sold PPI. We did this because we believed it was the right thing to do. When we began the remediation programme, it was thought this would cost the entire industry around £4.5 billion. To date the industry has set aside over £26 billion for PPI redress with the consequent impact on operational complexity and the significant administrative resources required.
Whilst our intentions were right, we made mistakes in our handling of some PPI complaints. I am very sorry for this. We have been working hard with the FCA to ensure all customers receive appropriate redress. That process is now substantially complete. We remain fully committed to improving our operational procedures and ensuring we do the right thing for our customers.”
Martin Dodd, Customer Services Director of Lloyds Banking Group said:
“We have worked hard with the FCA to address our operational mistakes and to ensure customers haven’t lost out. We have subsequently had our complaints handling process quality assured by an independent third party. Once we understood the issue we reviewed our processes and procedures and began to remediate all impacted customers.
Whilst during this period we continued to uphold and pay redress to around 63 per cent of customers who had a PPI product, it has meant re-reviewing all other cases against our new policy and paying back customers where appropriate. To date we have fully reviewed over 4.8 million PPI complaints, of which over 1.6 million had no PPI policy and have built a system with 7000 people processing these across multiple sites.”
Adjustments to Deferred Bonus Awards
On 27 February 2015, the Board 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 until the conclusion of the investigation. It did this to retain flexibility to consider the release of these Shares at the conclusion of the investigation.
Given today’s announcement the Board has now decided to make adjustments to payments due to the Group Executive Committee and for some other senior executives in recognition of their ultimate responsibility for oversight of the PPI operations. This will mean awarded but unvested bonuses totalling approximately £2.65 million in aggregate will be forfeited, subject to the process of individual representation.
In addition the Remuneration Committee has decided to reflect the impact of this fine as part of the Group’s aggregate annual awards for 2015, and will make a reduction of around £30 million to the Group bonus pool in respect of the fine.