UK banks face a flood of compensation claims from mis-selling payment protection insurance when approving loans or credit for customers, following a High Court ruling.
The High Court dismissed a challenge brought by the British Bankers' Association against its verdict that new rules banning the sale of payment protection insurance at the point a loan is approved can be applied to past sales.
The BBA said it was "disappointed" and was considering whether to appeal against the ruling.
"Any complaints that are directly affected by the judicial review and therefore cannot be decided will continue to be placed on hold until the next steps have been decided," it said in a statement.
Payment protection insurance has traditionally been sold by banks alongside loans, and pays a customers’ loan repayments if the person falls is unable to work or made redundant.
City regulator the Financial Services Authority said yesterday that there have been more than 1.5 million complaints made about PPI by customers since 2005 and banks have on average rejected 60 per cent of them.
It said 200,000 were referred to the Financial Ombudsman, which found in the favour of 74 per cent of them.
Ash Saluja, a partner at CMS Cameron McKenna, said there were serious concerns about the award of compensation through the current system.
“The role of the Financial Ombudsman Service as a retrospective standard setter is not an appropriate basis for dealing with multi-billion pound compensation,” he said.
“The banks are right to object; we should not have a rulebook to which back-dated rules can effectively be added in order to justify compensation.”