Banks face potential new PPI bill after court ruling

Shares of Lloyds Banking Group and other lenders fell on Tuesday after a court ruling raised the prospect of a big new bill for compensating customers sold payment protection insurance (PPI).

A judge at Manchester county court has ruled that a couple who bought PPI from Paragon Personal Finance whose premiums included 76% commission should be reimbursed all the commission.

The Financial Conduct Authority had told banks to refund any commission that was more than 50% of their premiums. The ruling, which scraps that threshold, could open up thousands of extra claims for PPI from customers even if they were not mis-sold the insurance.

A barrister who represented Christopher and Joanne Doran against Paragon told newspapers the extra bill for the industry could be as much as £18bn. Banks have already paid out £30bn in compensation for PPI, which they sold in the 1990s and 2000s.

Shares of Lloyds, the biggest seller of PPI, fell more than 1% in early trading and were down 0.2% to 62.15 at 09:02 BST while Royal Bank of Scotland shares fell 0.3%. Barclays shares fell in early trading but recovered to edge up 0.25%.

Reports said Paragon Bank, which owns Paragon Personal Finance, was considering appealing against the ruling. The FCA told the Guardian it did not recognise the £18bn figure. Paragon shares rose after the bank bought residential development finance provider Titlestone Property Finance and said it was trading in line with expectations.

PPI was meant to protect borrowers against illness or unemployment so they would not miss payments on loans. Banks used misleading sales practices and many policies did not pay out as promised when borrowers were in need.

Consumers have until 29 August 2019 to make claims for PPI. After an FCA ad campaign featuring Arnold Schwarzenegger prompted a surge in claims last year, trading updates in 2018 from Lloyds and other banks appeared to show claims slowing.