Suing banks to be made easier

LONDON (Reuters) - The government will this week outline legislation allowing consumers to group together to claim damages from financial institutions that mislead customers over financial products, a government source said on Monday.

The Financial Services Authority (FSA) will also be given greater freedom to demand banks pay compensation to large numbers of consumers who share the same complaint as part of a raft of measures aimed at cleaning up the financial sector.

The Labour government, well behind in opinion polls to the opposition Conservatives with an election due by mid-2010, launches its legislative timetable this week aiming to win back ground among voters by flushing out opposition policies.

The proposed changes come as part of new legislation for the financial sector including powers, detailed by finance minister Alistair Darling at the weekend, for the FSA to intervene if it feels bankers' contracts encourage risk.

The government wants to give more power to consumers to keep the banking sector in check, by making it easier to pursue more affordable avenues of complaint -- either as a group in the courts or through a stronger FSA, the source said.

Under current laws, courts have to assess each individual claim for damages over the mis-selling of products such as mortgages, pensions or other investments vehicles, making it too expensive and unattractive for many complainants.

"It's groundbreaking in that it would allow genuine group action through the courts in the case of widespread mis-selling or abuse," the source said.

The FSA would also get tougher enforcement powers to back its strategy of becoming more intrusive in the way it polices financial rules.

The draft law will introduce "future punishment for past actions," an official source said.