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Round 23 years in the past, I launched into a plan of action that damage the UK’s largest lenders. My actions from 2003 onwards led to firms paying £53.5bn in compensation to British debtors. Right here’s my story, along with a warning for homeowners of Lloyds Banking Group (LSE: LLOY) shares and different monetary shares.
‘The world’s largest whistle-blower’
From 1991 to 2002, I labored for numerous suppliers of cost safety insurance coverage (PPI). PPI is offered to debtors alongside credit score and retailer playing cards, mortgages, motor finance, private loans, and different monetary contracts. It pays out if/when policyholders are unable to work attributable to accidents, illness, or unemployment (or on loss of life).
As an business insider for 11 years, I knew that these insurance policies had been massively overpriced, poorly designed, normally mis-sold, and tough to assert in opposition to. I additionally knew that PPI suppliers made possibly £5bn a 12 months from promoting them. Therefore, in 2003, I went on the warpath.
Starting with a (lengthy gone) Idiot article in March 2003, “The Perils Of Fee Safety Insurance coverage”, I revealed the nastiest methods of the PPI commerce. I saved up this shopper campaign for over a decade. Finally, regulators and different authorities took discover after which motion. This Idiot article from December 2008 data my journey.
My offensive in opposition to PPI led to me being labelled as ‘the world’s largest whistle-blower’. Nonetheless, this marketing campaign would by no means have succeeded with out the immense help supplied to ripped-off PPI patrons by my well-known buddy Martin Lewis of MoneySavingExpert.com. Martin’s efforts immediately generated hundreds of thousands of profitable refunds, so he deserves the lion’s share of the credit score.
The following huge mis-selling scandal?
Now there’s a brand new fear for shareholders in Lloyds and different main lenders. One other mis-selling affair is working its manner by the courts, this time regarding motor-finance agreements.
Earlier than 2021, motor finance suppliers allowed automobile sellers so as to add hidden ‘discretionary fee preparations’ (DCAs) — paid for by increased rates of interest — to financing. The follow was banned in 2021. In October 2024, the Courtroom of Enchantment dominated that such hidden commissions had been illegal with out full disclosure and knowledgeable consent.
Check instances at the moment are earlier than our Supreme Courtroom, with a last ruling anticipated this summer season. In the meantime, Lloyds — which owns the UK’s largest car-finance supplier (Black Horse) — suspended seller commissions for brand new motor finance. Additionally, HM Treasury and the Monetary Conduct Authority have each weighed into this dispute, nervous about potential harm to British banks.
If the Supreme Courtroom guidelines in favour of debtors, the whole compensation invoice may attain £44bn. In different phrases, it might be a physique blow on par with the PPI scandal. That broken financial institution shares, but it surely’s unclear by how a lot, as the nice monetary disaster of 2007-09 precipitated a lot destruction of its personal.
My household portfolio has owned Lloyds shares since mid-2022. At the moment, they commerce at 76.92p, which is near its five-year excessive and values this FTSE 100 agency at £46bn. Buying and selling on 12.4 instances earnings and providing a dividend yield of 4.1% a 12 months, they don’t look costly to me.
That stated, if the Supreme Courtroom judgment comes down in favour of debtors, then Lloyds may need to pay billions extra in claims. I believe this is able to smash its share value, a minimum of for some time. At any charge, I will probably be carefully watching this house!
