The major banks are to begin their High Court challenge to overturn new rules on the way complaints about controversial payment protection insurance must be handled.
The British Bankers’ Association is launching a judicial review against the Financial Services Authority (FSA) and the Financial Ombudsman Service over new regulations that came into force in December.
The rules aim to ensure consumers are treated fairly, both when they buy payment protection insurance (PPI) and when they complain about being mis-sold the cover.
They require providers to talk potential customers through the key features of a policy, rather than just provide them with a document giving the information, while they will also have to be able to show that it was made clear to the consumer that the cover was optional.
But the banks are unhappy that the rules will not only apply to new policies which were sold after the beginning of December, but also to complaints relating to cover which was sold before the new regime was brought in.
The FSA estimates that the new rules will lead to PPI providers paying out up £1.3 billion in compensation for new complaints that are received during the coming five years, and up to £3.2 billion as a result of reviewing previous PPI sales and pro-actively contracting customers to offer them redress.
The BBA said the policy was like having a road with a speed limit of 30mph, which was later changed to 20mph, and deciding to hand out speeding tickets to people who drove at 30mph before the limit was reduced.
A BBA spokesman said: “We believe the FSA is effectively creating a precedent which permits it to apply new rules to previous sales – even where those sales were regulated by other FSA rules.”
PPI covers debt repayments if the holder is unable to work due to an accident or illness or if they lose their job.
But it has come in for heavy criticism after research found it had been mis-sold to many consumers who would never be able to claim on it, while others felt pressurised into taking it out alongside a loan or credit card. The cover is currently the single most complained about product to the Financial Ombudsman Service, with the group receiving nearly 2,600 complaints during the past week alone.