Thursday 11 June 2015

Lloyds Bank Fined $180 Million Over Handling of Insurance Complaints

The New York Times

LONDON — British regulators on Friday said they had imposed a fine of about $180 million on the Lloyds Banking Group over its handling of customer complaints about a contentious loan insurance product that has cost the industry billions of dollars. As a result, the bank said it would cut its 2015 bonus pool.
The regulator, the Financial Conduct Authority, announced the penalty, which it called its largest-ever retail fine, as part of a settlement with the lender for unfairly treating customers after they complained from March 2012 to May 2013 about the improper sales of payment protection insurance, or P.P.I.
The regulator said the bank had rejected 37 percent of complaints related to 2.3 million policies, even though in some cases the complaints had not been fully investigated and Lloyds had known that its processes were flawed.
The bank said that it would reduce the company’s bonus pool for this year by 30 million pounds, or about $46 million, and that its senior managers would forfeit £2.65 million in bonuses already awarded.
“The size of the fine today reflects the fact that so many complaints were mishandled by Lloyds,” the regulator said in a statement. “Customers who had already been treated unfairly once by being missold P.P.I. were treated unfairly a second time and denied the redress they were owed. Lloyds’ conduct was unacceptable.”
Norman Blackwell, chairman of the Lloyds Banking Group, said the bank accepted the Financial Conduct Authority’s findings and apologized to the customers affected.
António Horta-Osório, the group’s chief executive, said that while “our intentions were right, we made mistakes in our handling of some P.P.I. complaints.”
“I am very sorry for this,” he continued.
He said that executives “remain fully committed to improving our operational procedures and ensuring we do the right thing for our customers.”
The government held as much as 40 percent of Lloyds after the lender received a bailout of £17 billion in 2008, and it has continued to reduce that stake. This week, the government said that its latest sale of shares put the stake at below 19 percent and that additional share sales would run through December.
Payment protection insurance has cost British lenders about $29 billion over the past four years as they have seen waves of complaints from consumers over the product. The insurance was sold broadly by banks in Britain to consumers taking out mortgages, applying for credit cards and seeking other loans. More than 45 million policies were sold from 1990 to 2010.
The complex pricing and the terms of the policies made the insurance inappropriate for many consumers, according to the Financial Conduct Authority.
Banks in Britain have been pushing regulators to cap the time frame in which consumers can seek redress as the amount of claims has far surpassed the lenders’ original estimates and the number of claims has not fallen as quickly as expected.
The Financial Conduct Authority announced in Januarythat it would review the efforts that banks have made to compensate consumers and would examine whether further intervention was appropriate. The regulator is expected to announce the results of its review this year.
Lloyds was the largest provider of the product by far, and it has set aside about £12 billion to cover claims.

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