Britain's banks will be forced to re-open thousands of claims over the mis-selling of payment protection insurance (PPI) after losing a judicial review.
The High Court has ordered British banks to refund clients to whom they had mis-sold PPIs, thus confirming a directive by the Financial Services Authority (FSA), which was challenged by financial institutions.
Over 1.5 million complaints on litigious PPI selling procedures had been reported to the FSA in the last five years -- 100,000 of which were registered in the last financial year.
PPI is a mechanism which clients can purchase on a voluntary basis when contracting a loan. It constitutes an insurance on the client's loan, and thus implies a significant premium -- which covers the debt if an unexpected event such as illness or redundancy were to strike the bank's client.
However, FSA reports show that these insurance policies had been sold to clients that either did not need them, or simply did not know they were paying for it. The financial watchdog had previously issued a directive ordering banks to systematically consult misled clients and compensate those who did not willingly enter the scheme and were therefore paying unnecessary premiums. Compensations, which include the premium and interests, could mount to a final bill of close to £4.5bn.
The British Banking Association said it was "disappointed" by the judgement. It added that banks would now "consider the details of it very carefully" before deciding if any appeal was to be carried out. They have 21 days to start further procedures.