False PPI Claims Push Up Cost of Homeowner Loans

The chief executive of the Secure Bank Trust, Paul Lynam, has complained that 90% of the claims that his bank receives aren’t held up the the Financial Services Authority (FSA), and says that this draws away valuable time and resources from the bank, ultimately resulting in a loss of money that could be used for lending instead.

There have been calls recently for the claims companies to pay the £850 fee for launching a claim if the claim fails, and Mr Lynam has added his voice to them. Speaking about the PPI claims, he says that “it is costing us in excess of £100,000 a month to deal with these claims companies for almost no customer benefit whatsoever. I estimate if we had no claims management company-related costs over this past year, we would have been able to lend £10 million, or 20 per cent more than we have been able to.”

He has stressed that he doesn’t think customers should go without compensation, simply that there are companies making fraudulent claims again and again: “Those lenders who have clearly mis-sold PPI should pay customers compensation without question. However, not all PPI has been mis-sold. The claims companies are out of control.”

With the rising costs of compensation hitting numerous banks recently, adding on the money it takes to work through fraudulent claims as well could be a significant cost for the larger banks. However, this appeal to the idea of lending could be seen as a cynical attempt at rubbishing the PPI claims process. With the banks being criticised for failing to provide an adequate number of loans and mortgages during the financial crisis, it might just be them looking for a scapegoat.

As the claims and compensation payouts continue, the banks are likely to get more and more desperate about them, and arguments like this will appear more often.

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