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more trouble for the banks?

27 January 2011

A Judicial Review challenge is currently underway in the High Court by the British Banking Association (BBA). They claim that the Financial Services Association (FSA) and Financial Ombudsman Service have made an ‘error of law’ in retrospectively applying new, more stringent, rules to the sale of Payment Protection Insurance (PPI).

Should the BBA be unsuccessful, this could lead to a compensation pay out to customers of up to £3.2 billion, a figure based on just 20% of policyholders making a claim. In addition, at least 35 insurance firms could fold, costing £35 million to the FSA’s own compensation scheme.

An unsuccessful challenge may also set a precedent which could affect all products regulated by the FSA.

Consumers may receive compensation retrospectively, however with such high payout costs to the already hard hit banks; they may potentially face increased service charges as the banks try to recoup the monies lost.

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