Banks stalling on PPI complaints
The Financial Ombudsman Service is receiving up to 2,500 complaints a week about controversial payment protection insurance as some banks refuse to handle the claims.
The Ombudsman said while many businesses were continuing to handle complaints as normal, some banks had decided to put them on hold until the outcome of a judicial review on the issue was known.
The legal action was launched by the British Bankers' Association in October, challenging new rules on handling PPI complaints that are being introduced by the Financial Services Authority.
At the time the action was launched, the Ombudsman said it would continue to handle PPI claims as usual until the outcome of the review, which is scheduled for January, is known.
But it said some firms had decided not to respond "substantively" to many PPI complaints until the legal position was clearer. It said under these circumstances, consumers could still refer their complaints to it, but only once they had given banks eight weeks in which to respond.
The Ombudsman said: "The increase in PPI cases referred to us by consumers, where the businesses involved have not set out their conclusions on the complaints by the end of that eight-week period, means the rate at which we can settle these cases is now slowing down.
"Where businesses do not set out clear views on cases, it will be difficult for our adjudicators to resolve cases informally. Inevitably this can only result in further delays and additional costs."
PPI covers debt repayments if the holder is unable to work due to an accident or illness or if they are made redundant.
But it has come in for heavy criticism after research found it had been mis-sold to many consumers who would never be able to claim on it while others felt pressurised into taking it out alongside a loan or credit card.
In the past five years, there have been more than a million complaints made to firms about PPI.
This product currently accounts for around a third of all the complaints the Financial Ombudsman Service receives, with 73% of complaints currently upheld in consumers' favour.
Earlier this year, the FSA estimated that, as a result of its new measures, banks would be forced to deal with about 550,000 complaints a year for the next five years.
It also estimated that the average compensation would vary from £900 to £1,800, depending on the type of policy that had been sold.
The regulator believes this could land the industry with a further compensation bill amounting to £2.7bn, which will need to be paid to over two million people.