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* January compensation up 22 pct on month before
* Payouts had fallen in November and December
* Barclays says rate of claims decline lower than expected
* Barclays writing to holders of 750,000 policies
By Matt Scuffham
LONDON, March 8 (Reuters) - British banks paid out more tocompensate customers mis-sold loan insurance in January than themonth before, reversing a declining trend and pointing to ahigher final bill than banks have so far allowed for.
The Financial Services Authority (FSA) said on Friday bankspaid out 439 million pounds ($661 million) in January tocustomers wrongly sold payment protection insurance (PPI), up 22percent on December and the first rise since October.
The payouts brought the industry's bill so far to 8.9billion pounds. PPI was meant to protect borrowers againstsickness or redundancy, but was often sold to customers whodidn't want or need it, or who were ineligible to claim.
Banks have so far set aside 14 billion pounds to compensatecustomers and industry sources have said they think the finalbill could top 20 billion.
Natalie Ceeney, who is dealing with complaints as head ofthe Financial Ombudsman Service, this week told Reuters bankscould be paying out to customers for years to come.
PPI has become the biggest mis-selling scandal to hit UKbanks and they have repeatedly underestimated the scale of theproblem. Britain's biggest retail bank, Lloyds Banking Group Plc, has set aside 6.8 billion pounds for PPI compensation.Barclays Plc has set aside 2.6 billion and RBS has provisioned 2.2 billion.
RATE OF DECLINE
In its annual report on Friday, Barclays said it hadprocessed 1.1 million claims from customers. It said the numberof complaints it received had declined since its peak in May2012, but the rate of decline had been less than expected.
In addition to the 1.1 million complaints received, Barclayssaid it had, at the request of the FSA, began writing to holdersof a further 750,000 policies. It had written to holders of100,000 policies by the end of December and expects theremaining letters to be sent by the end of June.
Barclays said it had paid out on about four out of 10complaints received and the average compensation per claim was2,750 pounds.
The ombudsman, which settles disputes where banks and theircustomers cannot reach agreement, said on Tuesday it hadreceived nearly 38,000 PPI complaints against Barclays in thesecond half of 2012 and upheld 77 percent in favour of theconsumer.
Data from one bank and industry sources on Thursday showedthe banks had still profited from PPI sales.
Top bank executives held a conference call on Thursday todiscuss whether to continue pressing the FSA to set a deadlineon when customers can make PPI claims.
The call ended without a firm decision and talks will resumein coming weeks, a person involved in the discussions said.Banks want to cut off claims by April 2014, which the regulatorhas said it will consider, but executives have told Reuters theyare pessimistic about their chances of success.
