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Deadline in Britain's biggest financial scandal nears with claim surge expected

As the U.K.'s banks prepare to draw a line under the country's biggest financial scandal with the Aug. 29 cut-off date for applying for compensation for mis-sold payment protection insurance, the regulator expects a surge in claims.

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An animated version of American actor Arnold Schwarzenegger has featured in most of the Financial Conduct Authority's adverts promoting payment protection insurance compensation.

Source: FCA

The Financial Conduct Authority said its polling shows 18% of eligible consumers will make a last-minute decision on whether to complain about mis-sold PPI, and slightly more than half of those are confident they will complain ahead of the deadline. Consumers will not be able to claim money back after the August 29 deadline.

The PPI saga, the costliest ever faced by the U.K. financial industry in terms of provisions, continued to trouble banks right up until the final deadline. On August 23, the Competition and Markets Authority told Royal Bank of Scotland Group PLC and Santander UK Group Holdings PLC to appoint independent bodies to monitor their PPI processes after the banks had failed to send or had sent out inaccurate annual PPI reminders to customers who must be told how much they paid for their policy, the type of cover they have and their right to cancel.

Over the past two months, the regulator has been running an advertising campaign — featuring an animated version of actor Arnold Schwarzenegger — encouraging consumers to claim money back for mis-sold policies. It said the campaign had resulted in a 269% increase in calls to the regulator compared with the previous eight weeks. S&P Global Market Intelligence has previously reported on the surge in complaints ahead of the deadline.

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The FCA's latest PPI payout figures showed that £340.4 million was distributed in June to customers who complained about the way they were sold PPI. This takes the amount paid since January 2011, when PPI compensation began, to £36 billion.

PPI was designed to cover loan repayments on credit cards, mortgages and loans if the consumer was unable to do so because of sickness or unemployment. An estimated 64 million policies were sold, mostly in the 1990s and early years of the 2000s. However, many were mis-sold, with up to a third deemed useless by consumer groups, leaving holders with valueless cover.

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Lloyds Banking Group PLC, the country's biggest mortgage provider, is by far the biggest provider of PPI compensation, with a total provision for PPI compensation greater than £20 billion. It announced in June that its PPI provision for the first half of the year was set at £650 million. In June, Lloyds said it was receiving 190,000 PPI information requests a week.

Lloyds and the country's other three largest banks had provisioned more than £38 billion in total for PPI compensation as of end-June 2019.

The average PPI payout is £2,000, and it is likely to take years for the banks to deal with all the claims.