Jeff Salway: Banks must stop bleating and pay out to end mis-selling scandal

What will it take for the banks to accept they are in the wrong and to do the right thing by their customers? I'm referring of course to the ugly stain on the industry that is the mis-selling of payment protection insurance (PPI).

The English High Court last week ruled very decisively against the banks in their challenge to the City watchdog's rules requiring them to review past complaints about PPI. The case was launched by the British Bankers' Association (BBA) against the Financial Services Authority (FSA) and the Financial Ombudsman Service (FOS) but the judge made it quite clear the banks do not have a leg to stand on.

The result opens the way for a flood of compensation claims expected to cost the banks around 4.5 billion. But that assumes that the banks don't have the brassneck to appeal the decision. As it happens, the odds are in favour of them dragging the sorry saga out even further to delay a compensation process they know they have to face sooner or later.

It would be a move of breathtaking arrogance from an industry that, somehow, still manages to find new ways of soiling its battered reputation.

The PPI scandal embodies much that is wrong with high street banking today. The extent of the mis-selling is astonishing, when you realise how many of the policies have been sold to people who would never need, or be able, to claim on them. The mis-selling has been wilful and aggressive. Thousands of bank staff working to sales targets have blatantly lied to customers who have no need for PPI but have been pressured into buying it at premiums far higher than the cover is worth.

That has been compounded by the manner in which the banks have handled the regulator's efforts to tackle the mis-selling.

They bleat about the FSA's rules being retrospective, a tacit acknowledgement that once they do revisit previous sales, the floodgates will rightly open. Most compensation claims will date from the period between 2005 to 2009, with the bulk of the mis-sold policies flogged by bank staff alongside the actual loans they were designed to protect, a practice that has now been outlawed.

The mis-selling occurred on a scandalous scale in an industry that has come to view its customers as an opportunity for exploitation and profiteering.

Not even the BBA has the gumption to argue the toss on that count. But the banks have used the legal challenge as an excuse to put current claims on the backburner. The FSA didn't agree to any waiver but the banks took no notice when the watchdog told them to deal with the complaints. Last week the FSA threatened enforcement action if the moratorium doesn't come to an end - it should call their bluff and act quickly. ?If the banks accept the ruling they will have to process a massive backlog of compensation claims.Up to three million people mis-sold PPI can now claim compensation and some estimates put the cost to the banks at more than 5bn, although around 4.5bn seems more realistic.

Edinburgh's state-supported banks, Royal Bank of Scotland and Lloyds Banking Group, are potentially the biggest losers, with each looking at a compensation bill said to be around 1bn.

Millions of people will have reason to be thankful if a line is finally drawn under a saga that has rumbled on since 2005. In the long-term, however, last week's decision took us another step closer to the end of free banking. Of course banking isn't free as such, but we are moving inexorably towards a model where we have to pay fees for current account banking.

Whether fee-based banking is a positive thing will depend on an individual's financial circumstances and the banking products they use. If a move towards charging is accompanied by a reform of the high street banking culture, we'll all benefit. In the meantime, however, the banks need to face up to their responsibilities and dismiss any suggestions of an appeal against the High Court decision.

It's not in their interests to pursue this any further and they know they are in the wrong, but few people will be surprised if they elect to continue flogging this dead horse. They turned to the Supreme Court two years ago when they were on the wrong end of another High Court decision, that particular case concerning the fairness or overdraft fees. It paid off on that occasion but surely they know that lightning won't strike twice, so weak is their case.