The Financial Conduct Authority said it will launch a campaign in August to encourage consumers to decide whether to act about PPI before the deadline.
Andrew Bailey, chief executive of the FCA, said: “Putting in place a deadline and campaign will mean people who were potentially mis-sold PPI will be prompted to take action rather than put it off. We believe that two years is a reasonable time for consumers to decide whether they wish to make a complaint.
“We have carefully considered the feedback we received and we still believe that introducing a deadline for PPI complaints and a communications campaign warning of the deadline will benefit consumers.”
Consumers will have new grounds to complain about PPI regarding the amount of money that the providers received for the sale if they were not made aware of the commission.
The decision comes after a 2014 Supreme Court decision involving Susan Plevin who won a case against Paragon Personal Finance after the firm failed to disclose a large commission on a PPI policy.
The court ruled that the failure of the lender to disclose the commission gave rise to an “unfair relationship”.
Under these circumstances, consumers would now be entitled to get compensation for commission above 50% of the PPI value.
The FCA will also require all firms to write to previously rejected complainants who are eligible to complain in order to explain the new basis for complaining to them.
Consumers with live PPI policies will now be able to complain after the deadline if they have a future claim on their policy rejected for reasons related to the sale. The complaint must be related to the reason the claim was rejected.
Complaints about PPI policies sold after 29 August 2017 are not subject to the deadline.
The rules surrounding Plevin will come into effect at the same time as the deadline rule – not three months before as originally planned.
The PPI scandal has been a huge cost for the banking industry, with over £26 billion being paid out since the crisis began. Lloyds has been hit the hardest, setting aside close to £17 billion for claims so far.
Thomas Lyon, money expert at uSwitch.com, sais: “By introducing a deadline and launching an awareness campaign, the FCA is still expecting consumers to bear the brunt of the hard work when it comes to claiming the compensation they are owed.
“By putting the onus on consumers, our research shows that a third are likely to turn to claims managers rather than lodging a complaint directly with their bank. This means that consumers face being ripped off to the tune of up to 40% when the claims manager takes a large chunk of any cash they are awarded, for doing little more than sending a letter.
“For consumers who don’t know if they took out a PPI policy this is the time to find out. Contact your bank – they should be able to tell you if you’ve been mis-sold a PPI policy. If you are still unsure, check your credit report – it will list any loans or credit cards that you’ve had within the last six years, even if they’re now closed.
“If you are unhappy with the response from your bank, or have not heard back from them, contact the Financial Ombudsman Service. They will be able to look into your complaint for free and, if successful, you will keep all of the compensation you are awarded.”
Citizens Advice chief executive, Gillian Guy, welcomed the deadline, saying it would “draw a line under this ongoing scandal”.
“The Financial Conduct Authority’s plans to make people aware about the deadline and support vulnerable consumers with their complaints should help those affected get the compensation they’re entitled to.
“We’re still very concerned about fees charged by claims management firms for handling people’s PPI complaints – in some cases this can be almost half of people’s compensation – despite the fact that they can claim for free.
“To prevent firms using the FCA’s deadline to swamp people with cold calls, and ensure consumers get more of the compensation they deserve – the claims management regulator should set a limit on the amount firms can charge for handling claims by the time the deadline comes into effect.”