Barclays ramped up provisions for mis-selling by £2 billion as it admitted claims for payment protection insurance (PPI) were failing to slow as quickly as it had hoped.
The bank put by another £1.35 billion to cover PPI compensation claims and a further £650 million for complex interest rate products that were mis-sold to small businesses.
This takes its total mis-selling bill to a mammoth £5.5 billion so far. The bank’s compensation charge for PPI alone has reached £4 billion and Barclays said a drop-off in claims per month has not been as quick as expected.
While the rate of claims each month has fallen by 46% since the peak last May, the slowdown has been less than first predicted by the bank – prompting it to increase provisions for redress yet again.
And it warned that further provisions may be necessary, with the latest increase only a “best estimate” of future costs.
The hefty charges revealed in its first half results were higher than most analysts expected and showed the escalating scale of the PPI scandal.
The Financial Ombudsman Service (FOS) said last week it was receiving around 2,000 new complaints a day about PPI and said the insurance made up 83% of its caseload in the first quarter of this financial year.
It is the most complained-about financial product that the financial ombudsman has ever seen after banks across the sector sold thousands of borrowers loan re-payment cover they did not need or could not claim on.
Some 132,152 new PPI cases were received by the ombudsman between April and June, meaning the FOS is well on the way to surpassing the 378,699 PPI-related complaints it received last year.
Recent figures released by regulator the Financial Conduct Authority (FCA) showed that more than £10 billion in compensation payouts have been made so far by the industry to victims of the PPI mis-selling scandal.
But the FOS has criticised signs of bad practice in PPI complaints handling procedures amid concerns that high street lenders are failing to process cases properly.
Richard Lloyd, executive director at Which?, urged banks to “clean up their act”.
He said: “The eye-watering PPI compensation bill continues to escalate, showing how much banks have been in denial about the scale of their mis-selling.
“The banks still have a long way to go to clean up their act and one way they should do so is by making it much easier for consumers entitled to PPI refunds to claim their money back.”
Interim figures from Barclays also showed the mounting costs of redress for interest rate swaps – the controversial derivative products that were sold to small and medium sized businesses to protect against rate rises.
Many businesses did not fully understand the products and were left with major bills after the financial crisis caused a collapse in interest rates.
Barclays said its total charge for swap compensation had now reachd £1.3 billion, but added it expected the provision to cover the full cost of redress.
There is also another costly mis-selling scandal on the horizon as the Financial Conduct Authority holds talks with banks over compensation for credit card theft insurance.
Banks that sold identity fraud and credit card cover on behalf of embattled card insurer CPP are expected to have to shell out after the FCA found many debit and credit card customers were duped into buying these policies.