The admission and redress figure came from responses by lenders to a consultation on Financial Services Authority (FSA) plans to compensate victims of missold payment protection insurance (PPI), to cover loan and credit card payments if you cannot work.

 

These plans, which have been delayed by at least six weeks following the consultation, include the reopening of hundreds of thousands of previously rejected misselling complaints (see the PPI reclaiming guide).

 

If the FSA's plans are adopted it expects the industry to pay out up to £1.2 billion over the next five years in redress and administrative costs for policies banks and lenders will missell in future.

The regulator initially estimated up to £400 million in compensation but revised this after analysis of data from firms presented during the consultation.

 

The FSA says in its new consultation document released today: 'These changes follow further analysis by us of additional data we sourced from firms.

 

'Our estimate of the redress costs firms will incur has increased from around £58 million to £80 million per year to £117 million to £203 million per year (for five years).

 

'Taking into account estimated administrative costs, we expect total costs to firms from future complaints of £0.7 billion to £1.2 billion over this five-year period.'

 

Advice: For help with PPI Claims and PPI Reclaims please call 0800 043 1683.    

 

In its report published on 29 January 2009 the CC found adverse effects on competition in the markets for PPI and decided that a package of remedies, including a prohibition on selling PPI at the credit point of sale (POSP), would form as comprehensive a solution as is reasonable and practicable to the AEC and detrimental effects on customers.

 

However, it has now found new evidence that has caused it to reconsider the effectiveness and proportionality of its remedies package for retail PPI. That evidence came from qualitative consumer research by GfK, relating to customers’ interest in searching for alternative PPI policies. In light of this new evidence and its assessment of it in its remittal provisional decision, a Supplementary Remedies Notice invites comments on the actions that might be taken with regard to retail PPI by the CC or that the CC might recommend for implementation by others, for the purpose of remedying, mitigating or preventing the AEC concerned or any resulting detrimental effect on customers.

Advice: For help with PPI Claims and PPI Reclaims please call 0800 043 1683.   

 

The regulator envisages that compensation for customers who have complained may cost the PPI industry between £700 million and £1.2 billion. The potential cost of reimbursing customers who have not complained could mean a further bill of between £1 billion and £3 billion.

 

Ben Heffer, insight analyst at Defaqto and author of Defaqto’s PPI report, said: 'Given the scale of potential compensation amounts there is certain to be a lot of legal argument. The banks and lenders are not going to want to give up this much revenue without a fight and some respondents to the FSA have already challenged their authority to do what they are proposing.