Millions of people are due to receive a letter from their bank informing them that they may have been mis-sold a Payment Protection Insurance policy with their loan so could be in line for compensation.

The reason for writing proactively is that there are many people who have been mis-sold Payment Protection Insurance (PPI) with their bank loan who have not yet complained [1] and, under the Financial Services Authority (FSA) guidelines, the banks are obliged to bring the possibility to their clients' notice. They 'should analyse the root causes of PPI complaints' received says the FSA.

To support this, the FSA has today issued proposed guidance for banks on how to contact customers about the possibility of mis-sold PPI.

The letters have to be 'clear, fair and not misleading' and include a clear explanation of how important the letter is, that the customer might have been mis-sold PPI, the specific failings involved and that the customer may have lost money as a result together with clear guidance on any time constraints.

The time constraints are important here as the FSA says that "Normally, customers have six years from a sale to complain or, if later, three years from when they became aware (or ought to have become aware) that they had cause for complaint. When a complaint is made outside this limit, the firm is no longer obliged to consider it and can reject it; the Financial Ombudsman Service may also dismiss a complaint made outside these time limits."

But, if you think you have been mis-sold PPI, which can in some cases add some 20% to the total cost of the loan, then it is important that you get your money back.

To do this you do not need to wait for a letter from the bank, just write your own letter of complaint to the lender even if it falls outside of the constraints outlined above – you never know. A guide and template letter can be found at thisimoney.co.uk HERE. Or, if you feel uncomfortable with doing that then use a claims firm but be aware that they do charge some sort of fee for doing so. Make sure you do your own due diligence and research if you do decide to go down this route.

Commenting on this phase of the PPI mis-selling saga FSA managing director, Martin 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.

"We think that the redress due from this process may well exceed what has been paid so far, and that is why we are acting now to clarify our expectations. By ensuring that firms are clear about the problems they have identified and the potential redress due, we are aiming to prevent people running out of time if they choose to complain.

"Historically, response rates for these types of exercises are low – sometimes as low as one in ten. 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 British Bankers' Association and Association of Finance Brokers have both indicated their strong support for the guidance, and – along with consumer group, Which? – have also been in discussions with the FSA to try and reach agreement on how best firms can communicate with affected customers, both in the context of these contact exercises and PPI more generally. These are encouraging moves."

[1] http://www.fsa.gov.uk/library/communication/pr/2012/021.shtml

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