Banks are starting to write to millions of customers explaining that they might have been mis-sold payment protection insurance (PPI).

These letters must be written in clear, jargon-free language, the Financial Services Authority (FSA) has ordered.

The watchdog has outlined what these letters should contain, including details of a time limit for making a complaint.

It said the dispatch of letters was a "key moment" in the PPI saga.

Customers will need to respond to the letters to make a claim for compensation.

Consumer groups have pointed out that people can complain directly, for free, without using a claims management company that would charge a proportion of any resulting payout for its service.

'Expectations'

PPI was supposed to repay people's loans if their income dropped because they fell ill or lost their jobs, but hundreds of thousands of people were mis-sold the policies.

If you feel you have been a victim of poor practice then please do respond to the firm Martin Wheatley, FSA managing director

Banks paid out £1.9bn to the victims of mis-sold PPI last year, with many thousands of people having successfully applied for compensation.

The FSA said these institutions were now looking into how to treat customers who had been mis-sold PPI, but had not complained.

"We think that the redress due from this process may well exceed what has been paid so far, and that is why we are acting now to clarify our expectations," said Martin Wheatley, FSA managing director.

"By ensuring that firms are clear about the problems they have identified and the potential redress due, we are aiming to prevent people running out of time if they choose to complain."

'Jargon-free'

The FSA expects banks to write a total of anything between four million and 12 million letters to customers who might have been affected.

These must:

Make it clear to customers that the letter is important, that they might have been mis-sold PPI, and why

Explain that they might have lost out financially and could claim for compensation

Be written in language that is free of jargon and marketing

Point out that any claim might be subject to a time limit

The FSA said that, in most cases, deadlines included a six-year timescale from the date of sale for customers to complain.

However, customers must put in a claim within three years of when they were made aware, or ought to have been aware, that they had cause to complain.

"Historically, response rates for these types of exercises are low - sometimes as low as one in 10. Therefore, if you receive a letter, it is important to consider your PPI purchase carefully and if you feel you have been a victim of poor practice then please do respond to the firm," said Mr Wheatley.

Martin Lewis, of MoneySavingExpert, said: "Not everyone who has been mis-sold PPI will get a letter.

"Providers only need write to those who have been 'systemically mis-sold', yet there are many more individual cases. Check through all loans, credit cards and store cards you have had in the last 10 years to see if this insurance was added to it."

The British Bankers' Association (BBA) and the Association of Finance Brokers (AFB), which represent banks and lenders, said letters were being sent out to customers in stages.

"The agreed aim is to make letters more accessible and readily understandable for customers," said a spokesman for both bodies.

"The industry wishes to ensure that the exercise is effective and will endeavour to handle responses from customers promptly."