The Financial Services Authority says that compensation for PPI last year cost the banks £1.9 billion - with £441 million paid in December. However, payments should be speeded up, urges a consumer body.

By Charlotte Beugge

The Financial Services Authority (FSA) has revealed that banks paid out £1.9 billion in compensation for mis-sold payment protection insurance (PPI): but consumer group Which? immediately demanded that payments be speeded up.

Payment protection insurance (PPI) was meant to repay people's loan or credit card debts if they could not work due to illness or unemployment. However, it emerged that many policies were mis-sold as policyholders could not possibly claim - for example, self-employed people could not possibly have claimed for unemployment.

The FSA said that just in December, £441 million was paid out in compensation, the peak month for payment, up from £379 million in November and £268 million in October.

Its figures are based on 16 unnamed firms which account for most PPI claims and the BBC says that the typical compensation payout was more than £2,000 per claimant. However, the final bill for the banks could be around £7.6 billion.

Consumer group Which? is calling on banks to speed up claims. Its executive director, Richard Lloyd, said: "It's good to see the PPI payout is finally starting to speed up, but last year's compensation of £1.9 billion is less than a quarter of what lenders expected to refund.

"Too many people are still finding the claims process too lengthy, the banks must streamline the process to make it easier for people to claim."

Which? warned that unless the compensation process is speeded up, more people may turn to claims management companies which charge a fee, adding that it has uncovered "dubious practice" such as giving misleading information.