TENS of thousands of customers are in line for refunds of up to €3,000 each as the full scale of an insurance scandal among the major banks is laid bare today.
The Central Bank has ordered the banks to find out how many payment protection insurance policies were wrongly sold.
Such is the scale of the scandal that the Central Bank took the unusual step of naming the six lenders involved.
Four of them are at least |part-owned by the state.
AIB, Permanent TSB, EBS (effectively nationalised), Bank of Ireland (part-owned by the state), Ulster Bank and subprime lender GE Money have been told to contact everyone to whom they sold such policies.
Payment protection repays your loan, mortgage or credit card if you lose your job, have an accident or die.
But thousands of policies were sold to people – including the self-employed – who could never make a claim under the terms of the insurance they bought.
The policies were sold with car loans and pushed on customers who took out credit cards.
Experts are concerned at the extent of the problem, as approximately 300,000 payment protection policies were sold between 2008 and 2011 alone.
Those who were wrongly sold the polices -- and it is expected to run into tens of thousands -- could be entitled to refunds of between €2,000 and €3,000 each.
The total cost of sorting out the mess is expected to cost these banks up to €600m when all expenses, such as the investigation and administration, are taken into account.
Customers who were mis-sold insurance will be celebrating their refunds, but the taxpayer will have to cover much of the cost.
The Central Bank has also warned it is considering taking legal action against some unnamed firms that it feels broke the rules when selling protection insurance.
Payment protection is separate to mortgage protection insurance, which lenders insist homeowners must take out.
The self-employed, homemakers and part-time workers are barred under the contracts of the insurance from making a claim.
The Central Bank said the unusual decision of identifying the firms was done with their permission.
Central Bank officials want the lenders to review their files on payment protection and refund people who should never have taken out these policies.
Director of consumer protection in the Central Bank, Bernard Sheridan, said the banks and other firms that sold protection insurance will write to customers in the coming weeks explaining how they will handle their probe of the issue.
"The Central Bank is requiring the firms to take an orderly, co-ordinated and consistent approach to their reviews and we will continue to monitor them closely."
Mr Sheridan said customers do not need to do anything at present. They will be contacted by the firm that sold them protection insurance.
He added that large numbers of claims management companies, acting on behalf of people who claim they were mis-sold payment protection, have been trying to get refunds from banks for clients.
Many claims management firms that have begun to spring up, but using one could mean losing up to €500 of any pay-out in costs.
The fees can gobble up as much as one-quarter of any refund that a consumer who was mis-sold the insurance is entitled to.
This means that someone who gets compensation of €2,000 will end up shelling out €500 in charges.
The National Consumer Agency said there was no need to engage a solicitor or a claims agency.
"You do not need to use a claims management company if you are entitled to a refund," the state-supported consumer body said.