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Compensation could reach £Billions
The bill for compensating customers that bought Payment Protection Insurance could reach £4.5bn. The judge ruled against the banks that were against the tightening of the rules on selling PPI. The regulations were being questioned by the FSA and the Banks after the new guidelines came into force in December.
The FSA has estimated that providers will need to pay more than £1.3 billion in compensation for new complaints they may receive in the next five years.
The FSA estimates that implementation of the new proposals could cost £3.2 billion; a figure based on the 20 per cent take up by those contacted who have bought PPI policies since 2005.
Lord Pannick for the association said that this could lead to 35 insurance companies failing with the resulting refunds paid out under the Financial Services Compensation Scheme. The new regulations will further embrace the “Treating Customers Fairly” ethos that the FSA’s guidelines insist on. The seller must make sure that the customer is fully aware of the key features of the product.
The banks are fighting against the regulations because they will not only apply to new policies sold after the beginning of December, but also to complaints relating to cover sold before the new regulations were brought in.
Lord Pannick said "Any requirement for firms to determine complaints by reference to standards retrospectively imposed by the FSA and altering liabilities of firms to their customers would be unlawful."
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