Consumers who were sold payment protection insurance (PPI) banks and other lenders could be in line for compensation totalling more than £2 billion after the Financial Services Authority issued new rules on how firms should handle the flood of complaints over mis-selling.
The Financial Ombudsman Service revealed that it had received more than 100,000 PPI complaints already, with nearly 2,000 received in the last week alone.
In four out of five cases, the ombudsman found in favour of the complainant, and told the PPI seller to pay compensation typically of around £1,500.
Of most concern to the FSA was that too many individuals, when they first complained, were being forced to take their case to the ombudsman rather than finding resolution from the bank that sold them the PPI in the first place.
PPI is sold to customers to protect them if they default on a loan, mortgage or credit card debt when they are made redundant or fall sick. But the investigation revealed that millions of people had been sold over-priced policies where making a claim was in some cases virtually impossible.
FSA data, received from 18 major sellers of PPI, showed that, on average, firms reject almost half of the PPI complaints they receive, and some reject nearly all.
Around 30 per cent of rejected complaints go on to the ombudsman, where more than 80 per cent are overturned in the consumer's favour.
PPI has become one of the biggest areas of enforcement activity by the regulator since a investigation by The Guardian newspaper first exposed in 2004 massive mis-selling of the product by firms enjoying profit margins of 80 per cent or more.
In September 2005 Citizens Advice made a "super complaint", calling for an Office of Fair Trading investigation into the PPI business, which at the time had an estimated 20m policies in force and produced annual revenue in excess of £5 billion for the banks and other lenders.
"We welcome the fact that the FSA is taking firm and appropriate action to get to grips with the harm done to consumers by widespread mis-selling of PPI over many years said Citizens Advice debt policy officer Peter Tutton.
“Evidence from our CAB network has consistently shown that, all too often consumers have been mis-sold PPI policies that are far too expensive and completely unsuitable for their needs, often contributing to debt problems.
"A huge step to restoring consumer confidence is ensuring that people who complain get a fair hearing and proper redress. Up until now, firms have too often handled complaints very badly, so the FSA’s action to spell out to firms what is expected of them was absolutely necessary."
A number of major firms have now pulled out of the market, including Lloyds Banking Group, which stopped selling PPI for loans, credit cards and mortgages across all its brands in July.
Commenting on the FSA’s proposals for businesses handling PPI complaints, Which? chief executive Peter Vicary-Smith said: "For years, the industry has handled poorly thousands of PPI complaints so it's important that the FSA is able to force firms to review old cases.
"We want the Government to act swiftly and activate the FSA's power to force lenders to review rejected PPI cases so consumers whose complaints were wrongly dismissed can get the redress they are due.
"If you feel you've been mis-sold PPI, you should always put in a complaint. If your bank rejects it then go to the Financial Ombudsman."
If you feel you have been mis-sold PPI, Which? claims its online PPI claim tool -
www.which.co.uk/ppiclaim - is the quick and easy way to claim back mis-sold PPI.
