Bank has been using ‘alternative redress’ to reduce the amount it has to pay out for mis-sold PPI policies

Lloyds Banking Group has been cutting the payment protection insurance (PPI) compensation payouts available to claimants, the BBC reports.

Lloyds said it was offering the correct level of compensation and that its actions were in line with regulatory guidance.

However, the bank has been using ‘alternative redress’ to reduce the levels of compensation it has to pay.

Alternative redress allows Lloyds to assume that the customer that was mis-sold PPI would have bought an alternative PPI policy elsewhere at a cheaper rate, and then deduct this from the compensation it pays.

PPI expert Cliff D’Arcy told the BBC the bank had saved over £60m over the last year by cutting compensation in this way.

The bank told the BBC that it had used alternative redress in 11% of cases in the fourth quarter of 2013.

Lloyds has been using this method since February last year and this has resulted in PPI compensation being cut by as much as 25% in some months.

D’Arcy said that it was unjustifiable to use alternative redress so widely, and that such reductions should only be applied in less than 1% of cases.

“A taxpayer-sponsored bank is depriving taxpayers of their rightful compensation by using a loophole. It’s a scandal coming out of a scandal,” he said. “”Lloyds is making substantial savings of millions of pounds a month, and customers are being short-changed.”

In a statement Lloyds said: “The compensation that we pay to customers is determined on an individual basis and is in line with regulatory guidance.

“The overturn rates for cases relating to comparative redress are in line with other PPI cases. These cases will continue to be reviewed on an individual basis.”

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