Banks pay out £2bn to settle claims in insurance scandal

The figure of £1.9bn revealed by the Financial Services Authority included £441m in December – the largest monthly sum so far.

However, consumer group Which? urged banks to do more to step up the pace of redress and help consumers avoid the use of claims management companies.

Which? executive director Richard Lloyd said last year’s compensation of £1.9bn was still only a quarter of what lenders expected to refund.

He added: “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.

“Otherwise this leaves an open goal for claims management companies that charge people a hefty fee for putting in a claim which is easily done yourself for free.”

Which? said anyone who thinks they may have been mis-sold PPI should contact their lender or visit its website at which.co.uk.

The banks have set aside an estimated £7.6bn to compensate consumers who were mis-sold PPI but based on an average fee of 30 per cent the compensation could be worth over £2bn to claims firms.

Barclays, which has set aside £1bn to cover mis-selling claims, issued figures showing PPI fuelled a 67 per cent jump in the number of complaints in its general insurance and protection business to 122,922 in the second half of 2011. It has not disclosed how much it has repaid customers so far but said excluding the PPI figure its volume of complaints was down 29 per cent in the half-year compared with 2010.

Antony Jenkins, chief executive of Barclays retail and business banking, said: “Tackling complaints is our top priority and today’s figures show real sustained progress on delivering on our commitments.”

Consumers took out PPI to help repay their loans if they fell ill for a long period or became unemployed, but a widespread mis-selling scandal emerged. Three million people are could qualify for compensation.