April 20, 2011 / 11:35 AM / 8 years ago

UK banks lose challenge to new insurance rules

LONDON, April 20 (Reuters) - The High Court has upheld new rules stipulating how British banks should treat customers who accuse them of mis-selling insurance policies, opening the door to billions of pounds’ worth of compensation claims.

Britain’s competition watchdog has been probing the possible mis-selling of payment protection insurance (PPI), which typically covers purchases paid for by instalments in the event of the buyer becoming sick or unemployed.

Last year the British Bankers’ Association (BBA) brought a judicial review of whether the new standards on how to handle PPI complaints and redress customers, in force since December, can apply to old sales.

The judge dismissed the challenge on all grounds on Wednesday, the Press Association reported.

The BBA said it was “disappointed”, adding it would now consider its next steps, including whether to appeal the ruling.

“Any complaints that are directly affected by the judicial review and therefore cannot be decided will continue to be placed on hold until the next steps have been decided,” it said in a statement.

The competition watchdog has estimated that customers were being overcharged by over 1.4 billion pounds ($2.3 billion) a year from the sale of PPI, and revenues from the sales have plunged since regulators stepped up scrutiny on sales practices. Analysts at Morgan Stanley said last year Lloyds Banking Group (LLOY.L) and the next four biggest British retail banks could have to pay out 5.1 billion pounds to compensate customers under a worst-case scenario for them.

The five banks will have to pay out 2.6 billion pounds under a “base-case” scenario, according to Morgan Stanley. [ID:nLDE69Q12N] (Reporting by Olesya Dmitracova; Editing by Will Waterman) ($1=.6117 Pound)

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