Refunds for Payment Protection Insurance on loans, mortgages or credit could cost banks well over £4 billion after it was revealed that most customers were a victim of an unlawful sale. It had previously been estimated that up to £1.2 billion could be claimed by customers who attempted to reclaim payments but this new figure includes the added amount of customers who the banks will be required to give refunds to.

A vast amount of customers have been sold PPI insurance that was not appropriate for them or not needed in their situation. Among those who were persuaded to buy policies were those with long lasting medical conditions, the self-employed and pensioners who, by definition, were ineligible for cover.

An approximation by the FSA shows that insurance brokers may have to pay up to £450 million with the rest being paid by a variety of PPI suppliers such as banks and insurance brokers. The average amount repayable to those who purchased policies is £2000 which is a significant amount and has sparked large consumer interest.

A number of high street banks have already been fined as the FSA attempts to make examples of them as well as forcing them to offer refunds to all of the eligible customers. High street insurance broker ‘The Swinton Group’ have been fined £770,000 for serious failings and were made to offer a full refund to over £350,000 customers while Alliance & Leicester have been fined £7 million.

The future sale of policies will be regulated and controlled in a move which is strongly opposed by finance giants. The FSA intends to put a stop to companies pressuring customers into buying useless policies. Adam Phillips, Chairman for the Financial Services Consumer Panel, says “for too long banks have regarded PPI as an easy product to sell and make money without considering whether it is really right for the customer”.