LONDON (Reuters) - Consumers who believe they have been mis-sold loan insurance have until the end of June 2019 to make a claim, Britain’s markets watchdog proposed on Tuesday, a year later than expected and potentially adding to the cost for banks.
Banks have paid 24 billion pounds in compensation to customers over the past five years for mis-selling payment protection insurance (PPI), making it Britain’s costliest scandal in financial services.
The Financial Conduct Authority (FCA) said the rule for setting a deadline for all PPI claims would come into force by the end of 2017, and would be accompanied by a 42 million pound consumer campaign to raise awareness of the cut-off date paid for by a levy on banks based on number of complaints.
The actual deadline would come into force two years later, by the end of June 2019, the FCA said in a statement.
The FCA had indicated in November the deadline would be sometime in 2018 and analysts said the longer period may mean more payouts for banks.
“For example, in its 2015 full year results, Lloyds set aside additional provisions to cover claims until mid-2018, so it is possible that an extra year’s worth of provisioning may now be required,” said Shore Capital analyst Gary Greenwood.
“We would not be surprised to see top-ups of a few hundred million pounds, and perhaps as high as one billion pounds, for each of the large UK banks, with Lloyds being the worst affected.”
Lloyds, which has 2 billion pounds of unused provisions, said it was disappointed the deadline had been pushed back.
“At this stage our guidance on our provisioning remains,” it said in a statement.
The PPI policies, designed to protect borrowers in the event of sickness or unemployment, were found to have often been sold to people who would have been ineligible to claim.
Regulators have had rules for PPI claims in place since 2010 and normally a deadline of three years is set, but surveys showed many people unaware they had bought the product.
“Putting a deadline on PPI complaints will bring the issue to an orderly conclusion in a way that protects both consumers and market integrity,” FCA Chief Executive Andrew Bailey said.
“We will ensure that our communications campaign will engage with all those who could be affected, particularly vulnerable consumers.”
The watchdog also set out the timetable for claims following the so-called Plevin ruling by Britain’s Supreme Court, which suggested there might be additional cause for complaint concerning commissions paid on PPI sales.
The FCA said on Tuesday rules for Plevin type claims would come into force by the end of March 2017, with the cut-off date set for June 2019.
Consumer watchdog Which? said the redress scheme for PPI claims was wholly inadequate and must be made more straightforward.
Reporting by Huw Jones; Editing by Rachel Armstrong and Mark Potter
Our Standards: The Thomson Reuters Trust Principles.