PPI News

Provision to Pay Co-op PPI Compensation Claims Contributes to Stress Test Failure

December 16, 2014

The provision to pay Co-op PPI compensation claims has been quoted as one of the reasons why the bank recently failed the Bank of England´s “stress test”.

The Bank of England´s “stress test” is an assessment carried out by the Prudential Regulation Authority that measures how well a financial institution would manage in a “meltdown” financial scenario in which inflation escalated, unemployment increased and house prices tumbled without warning. The assessment was carried out on seven financial institutions – with the Co-op Bank being the only one to fail.

One of the reasons quoted for the bank´s poor performance in the stress test is the size of the provision to pay Co-op PPI compensation claims. In 2013, the Co-op allocated £103 million to cover its liability for PPI refunds and also received a substantial fine from the Financial Conduct Authority (FCA) for delaying more than 1,000 Co-op PPI compensation claims during the banking industry´s legal challenge to the new PPI guidelines.

At the time, Tracey McDermott – the FCA´s Director of Enforcement and Financial Crime – commented: “Co-op put in place a policy that was likely to lead to complaints not being dealt with properly. While nobody suffered any financial loss, Co-op’s actions meant that a significant number of people had the resolution of their valid complaints delayed for no good reason.”

The Co-op Bank has recently experienced a series of poor financial results. The bank made a loss of £1.3 billion last year, and reported a loss of £76 million in the first half of 2014. The bank is not expected to make an operating profit until the second half of 2016.

The bank has also had to allocate funds for poor practises other than its handling and payment of Co-op PPI compensation claims. In 2013, the Co-op allocated £26.1 million to account for fines and redress for “alleged failings” when referring customers to card protection insurance companies, and an additional £15 million for “conduct issues incurred but not reported”.

Niall Booker – The Co-op Bank´s Chief Executive – said “We appreciate customers and other stakeholders continue to feel angry about how past failings placed the future of the business so seriously at risk. I would like to apologise to them, to thank them for their continued loyalty and to thank colleagues for their commitment during such difficult times”.

Read More