Antonio Horta-Osorio, the chief executive of Lloyds Banking Group (LSE: LLOY.L - news) , has written to the Justice Secretary demanding the ballooning costs of false payment protection insurance claims are shared by the claims management companies that are often behind them.
Mr Horta-Osorio, a strong critic of the false PPI claims, wrote to Chris Grayling to ask him to look at changing the law on who covers the cost of processing claims.
Lloyds pays a handling fee of some £850 for administering a claim to the Financial Ombudsman Service.
The letter, sent in mid-November (Xetra: A0Z24E - news) , said that while the bank is happy to continue to pay the £850 for cases that are proven to be valid, claims management companies (CMCs) should cover the costs for those they lodge which are proven to be invalid or bogus.
Under the current system, Lloyds and its peers have to pick up the Ombudsman’s costs, whether they are found to have mis-sold or not.
A source indicated that the letter “focused on the concept that the CMCs are getting a free ride”.
“They can lodge any number of claims, and not have to pay for them,” the source said.
The source went on to indicate that while the bank is happy to pay the Ombudsman’s fee for cases where it is found to have mis-sold, it does not think it is fair that the CMCs face no penalty if they file cases inappropriately.
In November, Lloyds set aside a further £1bn to cover compensation for customers mis-sold PPI, bringing its bill to date to £5.28bn.
The bill for the industry now stands in excess of £12bn , with further provisions expected from the banks in their year-end results, with Barclays first to report on February 12.
Last April, Mr Horta-Osorio said a quarter of PPI cases reported to it turn out to be false, and that up to 50pc of those received from CMCs had no merit. “It is fraud and I think we should stop that,” he said.
The Lloyds chief wrote to the Ombudsman last autumn to seek to amend the system, but was told that legislation would need to be changed in order for that to happen, hence the letter to Mr Grayling.
In October last year, Natalie Ceeney, chief executive of the Financial Ombudsman Service, publicly disagreed with banks’ accusations of fraud and said claims dismissed often turned out to be justified.
In part as a result of Mr Horta-Osorio’s efforts, the Ministry of Justice is now understood to be in talks with the British Bankers Association on the subject of who covers the cost of false claims.
A Ministry of Justice spokesman said: “The Government is stepping up its efforts to tackle the compensation culture, and to ensure effective regulation of claims management companies.
“We are looking closely at ways in which we minimise the financial burden on banks, which is created by the poor practice of some claims management companies.”
The spokesman added that Mr Grayling has, in the past few days, formally responded to Mr Horta-Osorio, but did not give details of the reply.