UK banks lose Payment Protection Insurance (PPI) challenge

UK banks have lost a judicial review that could have a major impact on whether more compensation has to be paid on mis-sold loan insurance.
Banks will now have to look back at past sales of Payment Protection Insurance (PPI), even if consumers have not complained.

Some estimates have said this could lead to a £4.5bn bill for the banks.

The British Bankers’ Association (BBA), which said it was “disappointed” by the ruling, has 21 days to ask to appeal.

The BBA also said banks would continue to put some fresh cases on hold until it had decided whether to continue its challenge in the courts.

Thousands of people have already received compensation because they were mis-sold PPI policies, which are supposed to repay people’s loans if their income drops because they fall ill or lose their jobs.

The banks challenged the Financial Services Authority (FSA) over guidelines it published last year which said banks should contact all past PPI customers and invite them to complain if they thought they had been mis-sold PPI.

Some PPI sales proved appropriate but the banking industry has been accused of mis-selling them on a huge scale, generating many millions of pounds in profits by selling insurance that people were unaware they were paying for or did not need, or on which they could not claim.

Customers would have to be repaid their PPI premiums, plus interest, if the bank or other firm concluded that the customer would not have bought the policy in the first place if they had been fully aware of the policy’s details.

A similar reimbursement could be due to those customers that paid for a policy in full up-front.

There have been more than 200,000 cases referred to the Financial Ombudsman Service about PPI in recent years, including 100,000 in the past financial year and now 5,000 each week. About three in four complaints have been upheld in the past.

The Financial Ombudsman Service said there should no longer be any stalling over fresh cases.

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