Lloyds TSB announced yesterday (May 5th) that it will be pulling out of the appeal process in regards to the mis-selling of payment protection insurance (PPI).
Several high street banks are currently appealing against a High Court ruling on April 20th, which means they will have to compensate consumers affected by the issue.
This means that any consumer since 2005 who feels they were mis-sold PPI will be able to complain to the Financial Services Authority (FSA) and claim compensation from the banks, which may cost them as much as £4.5 billion.
Some consumers may have been mis-sold PPI as they did not understand what it was, did not need it or they may not have been able to claim on it, rendering it useless.
Gillian Guy, chief executive of the Citizen's Advice Bureau, commented on Lloyd's TSB's decision.
She said: "We are really pleased to hear today that Lloyds is planning to settle PPI claims where redress is appropriate, after discussions with the FSA.
"We hope that other banks follow suit and customers will finally be awarded the compensation they are due for mis-sold PPI policies that were far too expensive and completely unsuitable for their needs."
PPI is a form of payment protection, which means that consumers applying for loans are often offered the product.
That is because PPI is supposed to cover loan repayments if the borrower falls ill or loses their job, meaning they can no longer afford to pay it off.
The banking sector received a total of 1.79 million complaints in the last half of 2010. Current accounts were the most complained about product followed by PPI with 434,596 complaints, the FSA revealed.
In 2005, there were a total of 20 million PPI policies in force, which generated annual revenue in excess of £5 billion.