Peers call for compensation to be paid to everyone mis-sold a policy, not just those who apply for a payout

The House of Lords has accused the government of ‘letting banks off the hook’ over the mis-selling of payment protection insurance (PPI).

Peers said it was unfair customers had to apply for compensation to receive a payout.

Labour’s Lord Eatwell, an economics professor at Cambridge University, said: “Individuals have to apply to the banks for restitution of PPI claims rather than the banks recognising the obligation that they know they have.

“Why is the government letting banks off the hook?”

Tory businessman Lord James said: “The banks got off on the wrong foot with their programme to make the repayments by refusing to write a letter to everyone telling them they owed them some money.

“It was left to customers to initiate their own claim and there is no certainty that many have not dropped through the net.”

However, Treasury spokesman Lord Newby said: “The government isn’t letting banks off the hook. The banks have paid out almost £13bn in respect of PPI claims, which is about 70% of the total they think is payable and there are a lot more claims in the pipeline.

“There has been a great deal of publicity around this. The consumer organisations are looking at how they do more in this area.”