Banks are bracing themselves for a stream of claims from owners claiming they were mis-sold payment protection insurance (PPI) when taking out loans to buy cars.
More than £5 billion has been set aside by banks for possibly millions of PPI compensation claims.
PPI policies are supposed to cover repayments on loans if someone falls ill, has an accident or loses their job.
Consumer organisations prot-ested for years that car buyers and others were duped into believing PPI was obligatory.
Thousands have already protested over mis-selling and been compensated.
New EU rules allow cancellation of a PPI within 14 days.
Antonio Horta-Osorio, the new boss at Lloyds Bank Group (41% owned by the UK government), announced a £3.2bn provision for PPI claims.
Its Black Horse division, Britain’s biggest specialist car loan provider, would not give an estimate of likely compensation claims, and neither have other banks.
Which? campaigned for change, saying banks were profiteering because adequate protection was widely available elsewhere.
Now large numbers of lenders say their PPI claims are being rejected and that clauses in agreements were not explained properly to them.
The industry has lost a crucial court battle. The British Bankers’ Association will not appeal after the High Court ruled that banks had to obey the new rules of the Financial Services Authority (FSA).
This requires them to go back over their past sales to see if customers have a claim for mis-selling.
The FSA has said banks would have to pay up to £4.5bn to settle claims, but this is thought to be an underestimate.
The Financial Ombudsman Service received 100,000 PPI-related com-plaints last year and is still getting around 5,000 complaints a week.