British banks at risk of high payouts after court ruling

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The British Bankers' Association lost a high court appeal Wednesday against moves to tighten regulation of a controversial payments insurance, threatening to cost them billions of pounds in compensation.

Judge Duncan Ouseley rejected a challenge brought over new regulations to control the selling of payment protection insurance (PPI) to borrowers.

The British Bankers' Association (BBA), which represents the interests of lenders, argued in court that losing the appeal could collectively cost them up to £4.5 billion (5.0 billion euros, $7.4 billion).

Independent analysts have put the figure at about £2.6 billion, according to Dow Jones Newswires.

The Financial Services Authority (FSA), whose new regulations aim for fair treatment of consumers when they buy PPI or complain about the insurance, welcomed Wednesday's high court decision.

"Whilst the UK banking industry has to date implemented every reform on PPI sales and complaints handling required by the regulators, the additional requirements ... effectively apply new standards to past sales, which we believe go beyond the rules and regulatory requirements," the BBA said in a statement.

"We are disappointed with today's judgment and now need to consider the details of it very carefully as well as next steps, including whether it would be appropriate to apply for permission to appeal," it added.

The FSA said Wednesday's ruling "signals the end of years of poor complaint handling and will trigger a dramatic improvement in the way customers are treated when complaining."

It added in a statement that there had been more than 1.5 million complaints made about PPI since the FSA began regulating the insurance cover in 2005.

PPI provides insurance for consumers in case they are unable to meet repayments on a credit product and was typically sold with personal loans, mortgages and credit cards.

It became controversial after it was revealed that numerous consumers had been sold PPI without understanding that the cost was being added to their repayments.

Britain's Competition Commission has since banned simultaneous sales of PPI and credit products. Financial institutions must now wait at least one week to sell PPI following the sale of a credit product.

© 2011 AFP

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