The British Bankers Association (BBA) has previously been accused of “colossal” misjudgement by consumer association Which? for bringing the case against new rules on mis-selling being applied retrospectively.
Which? said the move further damaged the reputation of banks among consumers already angry about their role in the recent financial crisis.
“PPI was mis-sold and complaints about it mishandled on an industrial scale for well over a decade,” says Which chief executive Peter Vicary Smith.
“Now the industry must make amends by quickly reimbursing the millions of people it has ripped off,” he adds.
Last month the High Court ruled that banks had to obey new Financial Services Authority (FSA) rules which require them investigate all past sales to find out if customers are eligible for compensation as a result of being mis-sold insurance, which was supposed to cover people if they could not make loan repayments due to illness or losing their job.
Many people found the insurance did not apply to them once they had signed up for it.
Adam Scorer, of Consumer Focus says banks should now act efficiently to deal with claims.
“The entire episode is an embarrassment for our High Street banks – it is now time to wipe the slate clean, pay up and look to learn lessons for the future,” he said.
The BBA had until today to decide whether to appeal the ruling. In a statement the BBA says it had decided to ditch its legal fight in the “interests of providing certainty” for bank customers.
In recent days Lloyds, RBS and HSBC have said they are putting aside multi-billion pound compensation funds to deal with claims.
Barclays chief executive Bob Diamond says: “”We don’t always get things right for our customers; when we get them wrong, we apologise and put them right.”