Barclays Agrees to Pay U.K. Customers’ Payment Protection Insurance Claims

Barclays Plc (BARC) will reimburse the full payment-protection insurance premiums plus 8 percent interest to customers whose claims were put on hold during a court challenge.

The bank will compensate customers sold payment-protection insurance without being told they could buy it from another lender, Barclays said in an e-mailed statement today. The British Bankers’ Association, an industry group, lost a court challenge in April to the Financial Services Authority’s PPI guidelines.

Barclays, Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) were given more time to handle the customer complaints by the FSA today after the court challenge created a backlog. Barclays said in May it would set aside 1 billion pounds ($1.63 billion) to resolve the claims.

“Barclays made a commitment to process all on-hold PPI complaints as soon as practicable,” the London-based bank said. “We have said before that when we get things wrong, we apologize, and work hard and work fast to put them right as quickly as possible.”

The banks have as much as 16 weeks to respond to the complaints, rather than eight weeks, the Financial Services Authority said in a statement today.

“Some firms are facing a huge backlog and now a surge of new complaints, which has created a bottleneck,” said Margaret Cole, the FSA’s interim director for business conduct. “It is not in the interests of consumers to receive further poor handling of their complaints as a result.”

PPI Revenue

PPI generates as much as 5.5 billion pounds in annual revenue for U.K. banks, with about 6.5 million policies sold in 2006, the FSA has estimated. The insurance covers payments on credit cards and mortgages in case of illness or unemployment.

Customers who bought PPI rarely compared prices and terms or switched providers, and usually weren’t aware they could buy it from a firm other than their lender, the U.K.’s Competition Commission has said. The FSA introduced rules in August after it found financial firms reject more than half of PPI complaints they received, and some rejected “almost all of them.”

Edinburgh-based RBS said in May it would earmark 850 million pounds to deal with the claims, after already making a previous provision of 100 million pounds. Lloyds, the biggest provider of PPI, set aside 3.2 billion pounds for the complaints. HSBC Holdings Plc said it estimated its liability at $440 million.

To contact the reporters on this story: Lindsay Fortado in London at lfortado@bloomberg.net; Howard Mustoe in London at hmustoe@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net