Consumers are set for a multi-billion pound compensation payout after banks lost a High Court challenge over controversial payment protection insurance.
In what was described as a “huge victory” for customers, the banking industry lost its claim that new rules on mis-selling PPI should not be applied retrospectively.
But in defiance of the Financial Services Authority, the banks said they would continue to refuse to handle some PPI claims until they had decided whether to appeal the decision.
The British Bankers' Association brought the action against the FSA and the Financial Ombudsman Service over new rules which came into force in December, and aim to ensure consumers are treated fairly, both when they buy PPI and when they complain about being mis-sold the cover.
But the regulations not only applied to policies that were taken out after December, but also to ones that were bought before the new regime was introduced.
The ruling paves the way for about three million people to receive compensation for being mis-sold the cover.
The FSA estimates PPI providers will have to pay out up to £1.3bn in compensation for new complaints that are received during the coming five years, and up to £3.2bn as a result of reviewing previous PPI sales and pro-actively contracting customers to offer them redress.
The British Bankers' Association expressed disappointment at the outcome.
A spokesman said: “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.
“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.”
But the ruling was welcomed by consumer groups, although they urged the banks not to introduce further delays in paying compensation.