U.K. Bank Shares Slip as Regulator Proposes Later Compensation Deadline
August 02 2016 - 5:19AM
Dow Jones News
By Max Colchester
LONDON--A U.K. regulator proposed to put a deadline on a
multibillion U.K. bank customer compensation program in 2019, a
year later than planned.
The Financial Conduct Authority said Tuesday that banks who had
sold customers insurance they didn't need would continue
compensating people until June 2019. So far banks have forked over
GBP24.5 billion ($32.34 billion) to people who bought the insurance
product, known as Payment Protection Insurance.
PPI was sold to cover mortgage, auto and other loan payments if
the borrower lost a job or fell ill. Many people didn't need the
insurance or could actually claim on it. U.K. bank shares dropped
in morning trading Tuesday amid investors' concerns that banks will
have to put aside hundreds of millions of pounds to cover the extra
compensation. Lloyds Banking Group PLC, for instance, only
provisioned for the claims until mid-2018.
Lloyds said it was "disappointed" that the deadline won't come
into force until 2017 adding that its guidance for provision
remained unchanged.
For years banks have lobbied regulators to stop the vast
payouts. Last year the FCA said the deadline could be at the end of
2018, but this has now been pushed back. The FCA on Tuesday
confirmed it will put in place a time bar but will continue to
consult on how it should be applied. A final decision is expected
in October.
"Putting a deadline on PPI complaints will bring the issue to an
orderly conclusion," said Andrew Bailey, chief executive of the
FCA.
Banks will also have to payout extra compensation for not being
transparent about the commissions involved in product sales. A
supreme court ruled in November 2014 that a loans company unfairly
sold a PPI policy because it didn't disclose the large commission
it and a broker received.
A rule on how that compensation will be paid out will be
outlined by the end of the year and implemented by March 2017. An
ad campaign will herald the deadline which would then come into
force end of June 2019.
Such is the scale of the payouts that some economists credited
it with bolstering the U.K.'s economy and boosting household
spending on items like cars and vacations. It also created an
industry with thousands of people employed by claims management
firms who offer to file complaints on customers' behalf.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
August 02, 2016 05:04 ET (09:04 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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