Banks are braced for a further £33bn hit over missold payment protection insurance ahead of an FCA decision on how to interpret a landmark Supreme Court ruling.
The Sunday Times reports banks have been using their latest interim results to warn of the implications of a ruling last year which could prompt further huge payouts over undisclosed commission when PPI was sold.
The Supreme Court issued its ruling in November in the case of Susan Plevin, who took out a loan and PPI in 2006 but was not made aware that over 70 per cent of the commission paid had gone to the lender, Paragon Personal Finance, and a broker.
The court ruled that as the commission had not been disclosed, it was in breach of the Consumer Credit Act.
One banking source told the newspaper the FCA may go for the “nuclear option” of applying the ruling to any product sold where commission was not disclosed. Another said: “Once you open the door for this, it could be apocalyptic.”
A study from Autonomous Research, chaired by former City minister Lord Myners, puts the cost at £33bn if the ruling was applied across financial services.
The FCA will rule on how widely the banks should apply the ruling by the end of the summer. It will also decide on whether to introduce a deadline for consumers to bring PPI misselling claims.