UPDATE 1-UK's FSA mulls deadline for PPI claims on banks-sources
* Discussions with banks at an early stage - source
* BBA says in talks with FSA about PPI
* FSA says considering a range of options
By Matt Scuffham and Rosalba O'Brien
LONDON, Jan 16 (Reuters) - Britain's financial regulator is considering putting a deadline on bank customers claiming compensation for being mis-sold insurance on their borrowings, sources familiar with the matter told Reuters.
The Financial Services Authority and UK banks are looking at ways to tackle the spiralling cost of compensating customers mis-sold payment protection insurance (PPI). Industry sources have said the total bill could be 25 billion pounds ($40 billion) and take banks several years to clear as claims from customers and their agents such as dedicated claims management companies continue to pour in.
With each billion pounds paid out in PPI compensation cutting the amount banks can lend in real terms by 10 billion pounds, the industry has lobbied regulators to put a limit on how much longer customers can have to make claims. But one of the sources stressed that the talks were at an early stage.
"It is far from a done deal", the source said.
The Times newspaper said on Wednesday that the British Bankers Association had suggested a deadline of next summer in return for the banks agreeing to finance a widespread advertising campaign to ensure people are aware that they only have a limited time to make a claim.
The BBA confirmed on Wednesday that it was holding talks over PPI with the Financial Services Authority.
"The ongoing work focuses on three issues as a priority: addressing backlogs, making sure that customers can be confident that the offers they receive are right and highlighting that there is no need for them to engage a claims management company," the BBA said in a statement.
Banks have so far set aside more than 12 billion pounds to deal with the biggest mis-selling scandal in British history and are struggling to cope with a mounting backlog of complaints.
The policies were meant to protect borrowers who found themselves out of work because of sickness or redundancy but were found to have often been sold to customers who did not want or need them.
Last week, the Financial Ombudsman Services, which steps in when banks and their customers can't reach a settlement, said it was currently receiving 5,000 PPI-related complaints each week and was recruiting 1,000 new staff to process them.
The FSA said it was looking at ways to deal with the unprecedented level of claims.
"We have considered a number of options and continue to do so. PPI is an ongoing and high-profile issue and we are monitoring it closely," the regulator said.
Typically Lloyds Banking Group has an army of 6,000 workers processing claims and has put aside 5.3 billion pounds for compensation.
Banks are also co-operating more with claims management firms to process the claims, despite their public criticism of the companies, which have been urging borrowers to claim.
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