LONDON (Reuters) - The former chief executive of Britain's biggest retail bank said the majority of insurance policies taken out on loans and mortgages were not mis-sold and blamed false claims for the rising compensation bill for banks.
Eric Daniels, chief executive of Lloyds (LLOY.L) between 2003 and 2011, said banks had paid out on fraudulent claims from customers who did not even have payment protection insurance because banks could not cope with the number of complaints.
"A fair number of bogus claims were paid out because the number of claims were so overwhelming that banks could not analyse whether or not they were genuine or not," he told a parliamentary panel on Thursday.
Daniels said he believed around half of PPI claims were "completely illegitimate"
Banks are facing a bill of over 12 billion pounds to compensate customers wrongly sold policies meant to protect borrowers who lost jobs or became ill, and industry sources have told Reuters they expect the number to double.
PPI is the most complained about financial product ever in Britain, with the financial ombudsman service receiving more than half a million cases.
However, Daniels told the Parliamentary Commission on Banking Standards that the product was solving a "fundamental customer need" and that PPI was a "very competitive product."
"I believe that customers did know what they were buying. They got good value. In those cases where they were mis-sold products, that clearly is wrong, but that's not the majority in my view," he said.
Reporting by Matt Scuffham; Editing by Elaine Hardcastle