Writing in the Times newspaper John Cridland, director-general of the Confederation of British Industry (CBI), called on the Government to consider a "statute of limitations" which would cap the amount of time consumers have to bring a case against a bank which has mis-sold payment protection insurance (PPI).
He also said that banks should be protected from lawsuits from businesses sold products linked to LIBOR, following allegations that the benchmarks were manipulated by banks and Government reform of the rates.
"PPI mis-selling is seen as a huge scandal that should never have happened and it is right that consumers are able to get swift and proper redress," Cridland said. "But banks are sending out tens of thousands of compensation payments and cheques and there is a real sense that the ball is now firmly in the court of ambulance-chasing claims-management companies."
"I firmly believe we now need to draw a line under PPI and I am urging the Government to consider the introduction of a statute of limitations for all PPI claims, capping the time during which legal proceedings can be initiated," he said.
PPI is intended to cover repayments due on loans for people who cannot afford them because of an accident, sickness or death. The largest banks have put aside £12 billion to cover compensation payments to customers who were mis-sold the product, according to Cridland, and analysts have predicted that payouts could ultimately amount to £15 billion.
"Financial helicopter drops on this scale might help lift consumer spending in the short term, but should payments really be made in cases where there is no real evidence of mis-selling?" Cridland said. "This is money that can only be spent once and I can't help thinking that the time has come for it to be put to work more productively through lending into the economy."
He added that banks were already "hamstrung" by the need to rebuild their capital buffers against future economic shocks without having to make compensation payments.
Cridland also expressed his concern about a recent High Court ruling in favour of care home operator Guardian Care Homes, which was told last month that it could bring a case against Barclays Bank in relation to interest rate hedges it purchased from the bank. Barclays announced in June that it had settled with regulators in the US and UK over allegations of "misconduct" in relation to its submissions to the London Interbank Offered Rate (LIBOR). LIBOR is the reference rate used internationally as the pricing basis if some $550 trillion worth of financial products.
"Banks must be held accountable for manipulation of LIBOR and the Wheatley Review has set out a comprehensive and compelling case for reform," he said. "But hindsight is a wonderful thing. It would be a dangerous precedent if banks were to be held responsible for products sold that related to LIBOR. Government needs to be prepared to step in to head off judge-led law if necessary."
The Government commissioned Martin Wheatley, who is the managing director of City watchdog the Financial Services Authority (FSA), to carry out an independent review of the regulation of LIBOR in July. It has since accepted Wheatley's report, which contained ten recommendations for reform and future regulation of the rate, in full.