The Financial Ombudsman Service says compensation payouts for payment protection insurance are “nowhere near” the profits banks made from the product.
Speaking to the Parliamentary Commission on Banking Standards last week, FOS chief executive Natalie Ceeney said banks made far more money from the products than they are paying back in redress.
The current total amount set aside by banks stands at around £12bn but some have predicted it could rise to as much as £25bn.
Last month, the FSA said it was in talks with the British Bankers’ Association about imposing an April 2014 deadline on PPI claims.
Ceeney said: “Even the redress that has been repaid so far does not come anywhere near the profits made over PPI.
“It is certainly true that if they tackled this earlier the bill would be far lower, without doubt. One of the disappointing factors for us is that this has been a long period of prevarication where they thought that if they could kick it into the long grass it would go away. Unfortunately there is now a big bill that needs to be repaid.”
Lord Andrew Turnbull said banks’ own ”idiocy” stopped earlier payouts, while Labour MP Pat McFadden slammed the “ludicrous” timescale for PPI compensation.