The Financial Services Authority and the banking industry are considering implementing a deadline for payment protection insurance mis-selling claims in order to slow down the backlog in disputes and billions of pounds in payouts.
A source close to the FSA told IBTimes UK that the UK regulator and Britain's Banking Association had been presented with an option to establish a deadline on claims to help tackle the growing backlog and costly stream of PPI claims.
The source also told us that the option to install a deadline was not "set in stone" but was being considered among other options presented to them.
The FSA would not confirm whether it was considering such a deadline but a spokesperson told IBTimes UK: "As you would expect for an issue of this scale and complexity we have discussed and considered a number of different options and continue to do so. PPI is an ongoing and high-profile issue and we are monitoring it closely."
IBTimes UK is still awaiting comment from the BBA.
Today (Wednesday), the FSA published a final guidance report that will help financial firms avoid creating and operating incentives schemes that drive mis-selling.
UK banks have already paid out billions of pounds on PPI mis-selling claims and the total bill is tipped to exceed £12bn.
In light of the flurry of mis-selling claims, a number of Britain's biggest banks revealed over the last year that they would be adding more to the compensation pot.
In October, Barclays added another £700m to its PPI compensation fund, bringing its payout pot to £2bn.
Initially, it set aside £1bn in 2011 and £300m it added in the first quarter of 2012.
In November, RBS significantly missed analyst expectations and posted a sharp decline in third quarter results, after adding another £400m to its PPI compensation pot, increasing the total amount to £1.7bn.
Meanwhile, Lloyds revealed it has employed 6,000 people to process PPI mis-selling claims and has set aside a total of £5.3bn in payouts.
'PPI Akin to an Oil Spill'
In October 2012, Martin Wheatley, the FSA's managing director, unveiled his plans to overhaul the financial services industry by promoting greater competition and a more stable and transparent and market in the hope of eventually rebuilding trust, when he becomes the Financial Conduct Authority's chief executive designate this year.
In a 32-page "Journey to the FCA" report Wheatley outlined how "PPI is akin to an oil spill in terms of its ongoing damage".
"One of the key lessons we have learned from previous market failures such as PPI is that it can be much more effective to intervene early; to pre-empt and prevent widespread harm to consumers from happening in the first place, rather than clear up after the event," added the report.
An example of what this could mean in practice is in the diagram below [Fig. 1].
"This sets out how the PPi issue developed over a number of years, in terms of the number of customers affected (incidence) and the amount of harm suffered (severity).We will aim to prevent any issue ending up in the red zone, which represents many customers and high amounts of harm," says the report.