Lloyds, Barclays and RBS given PPI complaint extensions

Barclays, Lloyds Banking Group (Lloyds) and the Royal Bank of Scotland (RBS) have been given the extra time to respond to complaints received about potentially mis-sold payment protection insurance (PPI), the FSA said.

"Under FSA rules PPI complaints have to be responded to within eight weeks," the FSA said in a statement.

"The extension agrees a timeframe for the firms to deal with the claims that have been put on hold and also agrees additional time for the firms to deal with PPI complaints received since the end of their involvement in the judicial review," the FSA said.

PPI covers consumers against being unable to meet repayments due on credit products and loans through accident, illness or death. Banks received thousands of complaints about PPI when customers realised that the insurance they had bought did not in fact cover them.

Last year the FSA, the UK's banking regulator, issued new rules on selling PPI. The new rules said that customers could make retrospective complaints about insurance packages they were mis-sold. The rules came into effect from 1 December 2010.

The British Bankers Association (BBA), which represents more than 200 UK banks, challenged the new rules saying it was unlawful for the FSA to apply new sales standards to old PPI transactions.

In April a High Court judicial review into PPI complaint handling procedures dismissed the BBA's attempts to overturn the FSA's rules. The BBA then dropped plans to appeal the High Court's decision after Lloyds and Barclays withdrew their support.

Some banks postponed investigations into PPI complaints whilst the judicial review proceedings took place. Now the FSA says the three banks must decide on the outcome of the complaints that were put on hold by the end of August.

The FSA has also extended the time for the three banks to respond to PPI complaints received since the end of the judicial review.

"PPI complaints received after the conclusion of judicial review but on or before the 31 August will be responded to within 16 weeks," the FSA statement said.

The three banks will have 12 weeks to respond to PPI complaints they receive on or after 1 September and before 31 December this year, the FSA said.

Strict conditions have been imposed on the temporary time extensions, the FSA said.

"The firms with the temporary time extension will have to keep PPI complainants and their customers fully informed; and provide the FSA with regular reports on compliance," the FSA statement said.

Lloyds, Barclays and RBS will be expected to comply with the FSA's eight-week complaint handling deadlines again by 1 January 2012 "at the latest", the FSA said. The time extension arrangements do not apply to any other banks, it said.

“We want to see all PPI claims for compensation dealt with swiftly and appropriately," Margaret Cole of the FSA said in the FSA's statement. "However some firms are facing a huge backlog and now a surge of new complaints which has created a bottleneck."

"It is not in the interests of consumers to receive further poor handling of their complaints as a result. This temporary extension means that these firms can process these complaints properly and fairly," Cole said.

“We will be monitoring their progress carefully to ensure the new deadlines are met, that complaints are dealt with as promptly as possible and the backlog is cleared as a matter of urgency,” Cole said.

On Monday Barclays announced that it would repay all its PPI customers whose complaint investigations had been postponed as a result of the judicial review without further investigating their cases.

Barclays said the payout was a "gesture of goodwill without any admission of liability". Barclays has previously said it was setting aside £1bn to repay PPI customers.

Lloyds and RBS say they will not issue automatic compensation for PPI complaints, according to media reports today.

In its annual report published last month the Financial Ombudsman Service (FOS) said that it had received 104,597 complaints relating to PPI in its last financial year. It is the highest number of complaints the FOS has ever received about a single financial product in a year, it said.