Consumers who took out a loan or credit card in the last six years have been told to check their documents to see if they were sold loan insurance, following a decision to re-open compensation claims.
So far the average sum paid out to consumers who complain they were mis-sold payment protection insurance (PPI) is £2,750.
Barclays, RBS and HSBC announced on Sunday that they would follow the example set by Lloyds and would no longer persue a legal fight against the Financial Services Authority (FSA) concerning sales of the controversial loan cover.
All cases which were put on hold at the beginning of the High Court case in October 2010 will now be re-opened and new cases will be accepted.
However despite the FSA’s demand that banks should actively contact customers they suspect may have been mis-sold PPI, Lloyds and Barclays said they only intended to contact customers who had already applied for compensation.
Individuals have also been warned that the backlog of complaints could take months to process.
But reclaiming money should now be easier, according to consumer groups. Banks have set aside billions of pounds to pay out compensation, including interest lost.
Consumers who were sold a PPI policy in the last six years and were incorrectly told that it was compulsory, felt pressured into a sale or were sold cover they could not claim on because they were self-employed or had a pre-existing medical condition, have been told to contact their provider.
Advisers have reminded consumers that they do not need to use a claims handling firm in order to receive compensation.
Customers who believe they were mis-sold a policy can contact the bank directly. They need to simply gather together information on the type of policy they were sold, the date it was sold and the conditions of the sale, along with details of why they believe it was mis-sold.
Those who receive no answer after eight weeks, or are unhappy with the answer they get, can then and go to the Ombudsman.
The British Bankers Association, which is representing banks in their legal challenge against the FSA, said it would continue to take forward their disagreement with the new regulations in “other ways”, although it is not yet clear what these might be.
The banks had argued that the regulator was unfairly applying new standards to past sales and initiated a legal challenge.
In April the High Court found in favour of the FSA.
Over 1.5m customers are thought to have complained about PPI so far, and the Financial Ombudsman is expecting many more to come forward.
The insurance was intended to cover repayments of loans such as credit cards and mortgages if the borrower was unable to work due to forced redundancy or illness
The final cost to the banks could be £4.5bn according to the FSA, although analysts have put the cost far higher at £8bn or £9bn.
Customers who wish to claim compensation for mis-sold PPI policy can download information from the Financial Ombudsman for free: www.financial-ombudsman.org.uk