Stephen Foley: Cost of mis-selling scandal will keep growing the longer that banks dig in

Outlook The nation's banks are dicing with danger by putting off compensation to the hundreds of thousands, or millions, of borrowers who were mis-sold payment protection insurance (PPI) with their loans. Sure, every pound that isn't paid out now is a pound the banks can invest for the future, but the High Court's trashing of their case has raised the stakes.

Already, estimates of the cost of cleaning up after this scandal run into the billions of pounds. The figure of £5.1bn that analysts at Morgan Stanley described last year as a worst-case scenario gets more and more plausible.

By dragging the issue through a Judicial Review, the banks have been working to delay payments, perhaps to spread them over a longer and more manageable period, or perhaps in the hope that discouraged victims might drop their claims all together. No doubt they have a sneaking hope that all the confusing headlines will muddy things enough that people decide not to claim at all.

The High Court ruling could not be clearer. The Financial Services Authority is to be applauded for its effort to right the wrongs of years of mis-selling, when overpriced or completely inappropriate insurance policies were foisted on borrowers, without it being clear to them what they were signing or that they could shop around for better deals. The banks have always had an obligation to sell products transparently and fairly, which they breached on a systemic basis with PPI. The FSA is not unfairly punishing banks for breaching rules that were not yet in force, Judge Duncan Ouseley mercifully found. It is only setting reasonable ground rules for PPI sales in the future and for redressing the rule breaches of the past.

Breathtakingly, the British Bankers' Association hardly moved its position after the ruling. It has 21 days to appeal and showed every sign of doing so. Certainly there will be no immediate opening of the floodgates, no quick start to the review of PPI sales and compensation complaints that the FSA demands. The recalcitrant banks appear determined to pile scandal upon scandal.

This sluggishness is not without potential financial consequence. Further battles through the courts only generate more eye-catching headlines, and more customer anger, both things likely to increase the percentage of the estimated 12 million Britons who have bought PPI policies to seek redress.

And as the FSA pointed out in the wake of yesterday's judgment, it has put no waiver in place – so firms must continue to deal with complaints where possible. That includes letting customers know they can refer their complaint to the Ombudsman if they are unable to progress it. Failure to do so, the FSA warned, could result in enforcement action.

It is beyond time for the FSA to use those powers – and get banks to release the money they owe.