Banks forced to contact all clients in PPI scandal

Millions of people who may have been mis-sold payment-protection insurance (PPI) but have not yet complained to their bank will receive a letter inviting them to complain over the next few months.

Up to 12 million such letters may be sent, according to the Financial Services Authority, which ordered the next phase in returning billions of pounds to consumers from the mis-selling scandal.

Last year the banks paid out £1.9bn in compensation to people who were mis-sold the insurance that was designed to enable them to continue paying off mortgages or loans if they lost their jobs or became ill. It is estimated total redress could cost the banks as much as £8bn.

Martin Wheatley, FSA managing director, said: "Historically, response rates for these types of exercises are low, sometimes as low as one in 10. Therefore, if you receive a letter, it's important to consider your PPI purchase carefully and if you feel you have been a victim of poor practice, please do respond to the firm."

The FSA said it expects the banks to have to issue anything from four million to 12 million letters.

Mr Wheatley said: "This is important guidance and marks a key moment in the story of PPI. So far the majority of payouts have been for complaints received before, or put on hold during, the judicial review.

"However, we are now beginning to see firms considering how to treat customers who were mis-sold but have not complained."

About 16.1 million PPI policies were sold from 2005 with a total value of about £17 billion. It is the biggest financial-services scandal since the 1980s.