Compensation paid to victims of payment protection insurance mis-selling has soared since banks admitted defeat in their bid to block payouts.

Figures released this morning by City watchdog, the Financial Services Authority (FSA), show a huge jump in redress since the British Bankers' Association trade body ended its legal battle in early May to block FSA rules on compensation.

These rules force banks to review past sales of PPI – to cover loan or credit card payments when people cannot work – and contact those mis-sold to offer money back, even to borrowers who have never complained.

It is estimated victims could be due a combined £9 billion back as a result, at an average £2,750 each.

Payouts rise

The largest PPI sellers have paid £215 million in compensation in the first half of 2011.

The FSA says this figure is from 16 firms that represent 92% of the PPI market.

Some £29 million was paid out in January, and the monthly figure stayed around that level, before rising to £37 million in May and soaring to £65 million in June.

Margaret Cole, interim managing director of the FSA's conduct business unit, says: "The treatment of PPI complainants has left an indelible stain on the financial industry's record.

"Looking ahead, we expect the amounts to vary somewhat as firms clear their backlogs while dealing with complaints.

"We remain committed to ensuring where consumers were mis-sold they will receive the appropriate redress from firms, and we are monitoring firms' progress to ensure this is done properly.

"Where we find this not to be the case, we are not afraid to take tough action."

What to do

Even though many lenders will offer compensation, they won't contact everyone, so get your claim in if you've been mis-sold.

If you're rejected or don't get a satisfactory response from your lender, you can take your complaint to the independent Financial Ombudsman Service, which upholds around three quarters of PPI claims.