Santander set aside £538 million for PPI

The bank's results for the first half of the year reassure investors that it has maintained solid profits.

That is, if you don't take the "extraordinary provision for PPI" into account.

It's costing Santander £538 million to repay mis-sold PPI.

Santander's PPI claims

Santander was the only major UK bank which didn't put a freeze on consumer PPI claims, in large part because the bank had simply sold less policies than its competitors and so had less to lose.

The other banks were waiting for the result of an appeal on whether the Financial Service Authority's (FSA) rules on compensation could be enforced retrospectively.

After a long fight, the banks lost that appeal and were forced to reopen their PPI cases and enforce FSA guidance on consumer redress.

Most analysts estimate that, over the past five years, over a million complaints have been made to firms about PPI.

Millions of those that ended up holding these policies, often after signing up for PPI after taking out a credit card or personal loan, claim that they felt pressured into taking the insurance out or did not fully understand the implications of the decision.

As a response to that widespread confusion, the FSA's guidance asked firms to take a broad brush response: compensating all consumers who had been sold PPI in a particular way.

It's those rules which have really hit the banks hard financially.

Other banks take a hit

Despite the widespread belief that Santander was somewhat sheltered from the PPI crisis, however, the bank has had to pay out a little more than international banking giant HSBC, which has set aside £270 million to compensate consumers.

Other banks have been forced to put away far more.

Royal Bank of Scotland set aside £850 million.

Lloyds Banking Group, the umbrella company which encompasses Lloyds TSB, Halifax and Bank of Scotland - made provision for £3.2 billion to be paid back to consumers.

Barclays has been forced to earmark £1 billion in consumer payments.

It's interesting, although not entirely surprising, to note that two companies hit hardest by the mis-selling scandal were those fighting regulator's attempts to curb sales of insurance products right from the very beginning.

In May 2010, for example, when the Competition Commission banned the sale of PPI products alongside borrowing, its decision was severely delayed after a legal challenge to the ruling from Barclays and supported by Lloyds Group.