Millions face PPI compensation as banks drop legal battle

Britain’s banks have abandoned a legal battle over the mis-selling of Payment Protection Insurance (PPI), leaving millions of people in line for compensation.

In what has been described as the biggest mis-selling scandal in British history, the move is expected to cost the banks up to £9bn.

The sheer volume of complaints means consumers will have to wait some time before receiving their compensation that the banks and other groups which sold the cover must handle.

PPI policies are supposed to cover loan repayments if someone falls ill, loses his or her job or has an accident.

Martin Lewis, creator of the website MoneySavingExpert.com, which has long campaigned on the issue, said: “This is a wonderful day for consumers. For once the banks have done the right thing and backed down.

“As much as £9bn that was wrongly taken could now be paid back.”

I think I was mis-sold a policy, what should I do?

A: If you have already complained you do not need to do anything, your bank will contact you. 

If you have not yet complained but think you may have been mis-sold a policy, you should lodge a complaint with the firm that sold it to you. Some banks have dedicated areas on their websites and special phone numbers for people to do this.

Monday's move affects only those policies sold after 2005, but people who think they were mis-sold a policy before that date can still complain to the firm which sold it to them.

On Monday the British Bankers’ Association announced it would not be appealing against a High Court challenge it lost over new rules on PPI mis-selling being applied retrospectively.

Lloyds Banking Group said last week that it was pulling out of any further legal action and setting aside £3.2bn to compensate customers.

It was joined today by Barclays, which expects claims to cost £1bn, while HSBC, which stopped selling the policies in 2007, has made a provision of £269m.

Taxpayer-backed Royal Bank of Scotland also confirmed that it would not be pursuing further legal action, although it has yet to put a figure on how much compensation it is likely to have to pay out. Unofficial estimates based on the group’s market share put the figure at around £1bn.

A number of other banks are also likely to face significant bills, as will stand-alone credit card and loan providers and some insurers.

Firms must now start processing claims for people who think they were mis-sold PPI, which had been put on hold while the legal action was ongoing.

Groups must also pro-actively contact customers and alert them to the fact that they may be entitled to compensation if they identify a pattern of mis-selling.