In the worst-case scenario, industry experts reckon the bill could get even higher, reaching £40billion.
The higher estimates come after the Financial Services Authority (FSA) requested that banks start to write to customers who had been sold PPI to encourage them to make a claim. Meanwhile, claims management firms have continued to advertise on television and in newspapers.
How can I make a claim?
If you do think you have been mis-sold PPI alongside your credit card, store card, loan or mortgage, you don't have to wait for your bank to get in touch. Although your bank is now required to contact you if you're eligible for compensation, there is nothing stopping you from writing to your bank yourself.
Explain to your bank why you think you were mis-sold PPI and they should get back to you to let you know whether you have a viable claim or not. If you don't hear from your bank within eight weeks, or you're not happy with the answer you receive, you can take your complaint to the Financial Ombudsman Service. You can find full details on how to make a claim in Mark Hooson's article.
Whatever you do though, do not turn to a claims management firm for help. They will offer to go through the claims process for you, but in return you'll be required to pay a fee. There is absolutely no need to do this when you can easily claim yourself for free.
FOS to take on more staff
Thanks to rising numbers of PPI complaints, the Financial Ombudsman Service (FOS) has said it will be taking on 1,000 more case workers to help tackle them.
According to the FOS, a year ago, it assumed it would receive around 165,000 new PPI cases by the end of the 2012/2013 financial year.
However, the number of PPI cases it has actually received has dramatically exceeded these assumptions, and the FOS now expects to have received around 250,000 new cases by the end of the current financial year. Customers are currently referring more than 5,000 new PPI cases to the FOS each week.
How much banks are setting aside
The new total compensation estimate could be problematic for the big banks who only upped the amounts they were setting aside for compensation in November when they released their third-quarter results.
The total amount the main ones have set aside is:
- Lloyds Banking Group: £5.3billion
- Barclays: £2billion
- RBS: £1.7billion
- HSBC: £1.3billion
Why does PPI have a bad name?
PPI was sold to customers to cover their loan, mortgage or credit card repayments if they could no longer meet them because they were made redundant or became ill and could no longer work. However, banks were found guilty of selling the policies to people who were not suitable for the insurance, such as the self-employed, and would never be able to make a successful claim.
Policies were often riddled with exclusions and were over-priced. In some cases, the cover was automatically included in loan repayments.
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