Banks facing massive PPI payout

The banking industry is facing the prospect of paying out billions in compensation after losing a High Court battle over controversial payment protection insurance (PPI).

Banks had challenged new rules which came into force in December surrounding PPI, and crucially, which would apply retrospectively to complaints and claims where the policy was mis-sold.

The court ruling has been described as a "huge victory" for customers, but the British Bankers' Association has said it will refuse to process some claims pending a possible appeal.

The banks had brought the court action against the Financial Services Authority (FSA) and the Financial Ombudsman, who were responsible for the new rules on PPI.

The decision paves the way for around three million people to receive compensation for being mis-sold the cover.

The FSA estimates PPI providers will have to pay out up to £1.3 billion in compensation for new complaints that are received during the coming five years, and up to £3.2 billion as a result of reviewing previous PPI sales and pro-actively contracting customers to offer them redress.

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