The British Bankers’ Association has launched a legal challenge against the Financial Services
Authority and the Financial Ombudsman Service, claiming they have not properly applied rules
relating to the mis-selling of Payment Protection Insurance (PPI).

The High Court has been told that banks face potential bills of up to £4.5 billion, due to the way rules
on handling PPI complaints have been interpreted by the FSA. Bankers are claiming that the most
recent FSA policy statement covering the sale of protection insurance is “more onerous” than the
guidelines that were actually in place when the policies were actually sold.

Payment Protection Insurance is often sold alongside lending such as personal loans and credit
cards, to provide protection against loss of income through accident, sickness or unemployment.
However, almost a million consumers have complained about alleged mis-selling of the policies. The
banks argue that applying the strict guidelines retrospectively would effectively equate to judging
past sales by current rules.

The BBA’s representative, Lord Pannick QC, told the High Court that handling PPI complaints would
cost the banking industry anything from £800 million to £1.3 billion over the next five years. He
added that the wider industry changes on the back of the measures would cost between £1.1 billion
and £3.2 billion.

Lord Pannick accused the FSA of an “error in law [which] we believe imposes on firms an obligation
more onerous than that set out in the conduct of business rules”.

To date, the banking ombudsman has received over 161,000 complaints about mis-sold PPI policies –
with around 90 per cent of complaints upheld in the customer’s favour.

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