Hundreds of thousands of bank customers who have had their complaints against payment protection insurance (PPI) companies turned down will soon find out if they are in line for compensation.
At 10am on Wednesday morning a crucial high court ruling will decide whether banks must examine old cases that claim customers were mis-sold the controversial form of loan cover.
About 6.5m PPI policies are sold each year, but since mid-2007 there has been a flood of complaints about policies sold when they were not needed.
The Financial Services Authority wants banks to change the way that policies are sold and to contact customers where they identify previous mis-selling.
But led by the British Bankers’ Association, banks are lobbying against changes that they say set new standards for old sales unfairly.
Although there is no official freeze on PPI mis-selling claims as there was for claims made against unauthorised overdraft fees in 2007, most banks have refused to deal with PPI claims until the final ruling.
The number of complaints received by banks about PPI jumped in 2010 as media coverage of the case increased and claims management companies sprang up to demand refunds for customers.
Consumers who were refused a refund and took their case on to the independent Financial Ombudsman Services were nearly all successful. By 2009, 90 per cent of complaints were upheld.
Government-backed Lloyds Banking Group, one of the biggest providers of PPI, received an increase in complaints of almost 70 per cent in the second half of 2010.
Banks say the cost of implementing new complaint handling measures for PPI could be “substantially” more than the regulator’s estimate of £4.4bn.
US investment bank Morgan Stanley has put the cost to UK banks of PPI mis-selling at £5.1bn.
PPI is typically sold along with a financial product such as loans, and will cover the repayment of the loan if the borrower loses their job through illness or redundancy and cannot meet payments.
But around one million consumers have complained they were mis-sold the policies and either did not understand the product or were encourage to buy something they were subsequently unable to use.