Lloyds will reopen compensation claims for victims of the HBOS branch fraud in Reading after an independent review found the original scheme was “neither fair nor reasonable”.
The decision is an embarrassing U-turn for Lloyds, which closed its £100m-plus compensation scheme in the spring and has been trying to draw a line under one of Britain’s biggest banking scandals.
Sir Ross Cranston, a former high court judge who ran the independent inquiry, said the bank’s review of the fraud had “serious shortcomings”.
The most serious concerned Lloyds’ “approach to assessing direct and consequential loss caused by the criminal misconduct”, he said. “This part of the customer review, both in structure and in implementation, was neither fair nor reasonable.”
Six people, including two former HBOS employees, were jailed in 2017 over a £245m loan scam perpetrated from the Reading branch. They were found guilty of pushing business customers into distress or failure between 2003 and 2007 by referring clients to a turnaround consultancy and loading them with unmanageable debts and fees. The fraudsters spent the proceeds on sex workers, superyachts and luxury holidays.
Lloyds originally offered compensation to 71 business customers. It paid out more than £102m in compensation, with individuals offered packages ranging from less than £100,000 to more than £5m.
But former HBOS Reading customers have accused Lloyds of failing to offer fair compensation in light of the real losses they suffered, refusing to discuss the basis for its decisions and not offering any opportunity for appeal.
The TV and radio star Noel Edmonds was one of the most high-profile victims of the HBOS Reading scandal, having claimed that his firm, Unique Group, was pushed into failure by fraudsters at the branch.
He reached a settlement with Lloyds this summer, which is understood to have involved a multimillion-pound payment.
The Lloyds Banking Group chief executive, António Horta-Osório, said: “Sir Ross has concluded that customers may not have received fair outcomes due to flaws in the review process. I am very sorry that this has happened.
“The group is committed to act on the recommendations made by Sir Ross, and will fully support giving customers the option of a voluntary re-review of direct and consequential losses.”
Horta-Osório pledged to work with customer advocates including the SME Alliance, representing victims, and the all-parliamentary group on fair business banking, to implement the recommendations.
They include offering all customers the option of an independent re-review of their cases, which will assess any direct or consequential losses that stemmed from the fraud.
Cranston also called for Lloyds to admit it gave MPs an inaccurate impression of the process used to settle claims back in 2018. Lloyds said on Tuesday in a letter to the Treasury select committee that it apologised “unreservedly” for the mistake.
The bank will have to explain its failings to the City regulator, which urged Lloyds to act quickly on Cranston’s recommendations.
“We are disappointed that, after such a long period of time, the consequences of the HBOS Reading fraud for customers have not yet been properly remediated,” the Financial Conduct Authority said.
“These failings need to be addressed by LBG quickly. Sir Ross has made a number of recommendations to achieve that and we will ensure LBG implements them in full as soon as possible.
“We will also require LBG senior management to explain how and why the failings identified by Sir Ross occurred in the first place. We will consider what further action may be required in light of those answers.”
