Santander has broken ranks and become an unlikely consumer champion by refusing to take part in controversial legal plans by banks to block mass compensation to payment protection insurance (PPI) mis-selling victims.

The decision by the UK's second biggest bank is a major blow to the British Bankers' Association's attempts to derail tough Financial Services Authority's (FSA) measures to ensure payouts (see the PPI Reclaiming guide).

These would force banks to review millions of past PPI sales where the insurance was sold in a similar manner to those who have already claimed compensation (see the Banks' PPI block MSE News story).

The FSA's plans could lead to over £2 billion in compensation if banks are then forced to proactively contact those mis-sold.

A source close to Santander, which has incurred the wrath of customers this year due to its poor customer service, says supporting the challenge would do more damage to its reputation than any gains it would make were the legal intervention to prove successful.

However, it is understood the bank has sold far fewer PPI polices over the years than many of its rivals meaning it can afford to take the hit of paying mis-selling victims.

FSA sources say the bank's decision will help its legal fight.

While not only distancing itself from the legal challenge, Santander will also continue to handle all PPI complaints, unlike many of its rivals.

A Santander spokesman says: "We are not involved in the legal action being pursued by a number of UK banks with regards to PPI. We will continue to deal with any issues our customers put to us regarding PPI in accordance with FSA rules."

Further reading/Key links

Ombudsman guide: Financial Fight Back
Reclaim mis-sold debt insurance: PPI Reclaiming
Other issue-specific reclaim guides: Bank Charges, Credit Card Charges, Direct Debits, Setting Off, Mortgage Arrears, Endowment Mis-selling