Consumers are set for a multi-billion pound compensation payout after banks lost a High Court challenge over controversial payment protection insurance.
In what was described as a "huge victory" for customers, the banking industry lost its claim that new rules on mis-selling PPI should not be applied retrospectively.
But in defiance of the Financial Services Authority, the banks said they would continue to refuse to handle some PPI claims until they had decided whether to appeal the decision.
The British Bankers' Association brought the action against the FSA and the Financial Ombudsman Service over new rules which came into force in December to ensure consumers are treated fairly when buying PPI and complaining about being mis-sold the cover.
They apply to new policies but also to those bought before the new regime.
The ruling paves the way for around three million people to receive compensation for being mis-sold the cover.
The FSA estimates PPI providers will have to pay out up to £1.3 billion in compensation for new complaints that are received during the coming five years, and up to £3.2 billion as a result of reviewing previous PPI sales and pro-actively contracting customers to offer them redress.
A British Bankers' Association spokesman said: "We are disappointed with today's judgment and now need to consider the details of it very carefully as well as next steps, including whether it would be appropriate to apply for permission to appeal."
Peter Vicary-Smith, chief executive of Which?, said: "Today's announcement is a huge victory for consumers. Instead of dealing with mis-selling, the banks are trying to wriggle out of paying up using the courts - this now has to stop."
Martin Lewis, creator of MoneySavingExpert.com, said: "The banks have behaved abominably. The hold has not been agreed by the FSA or Ombudsman, who have both lambasted it."
He called on the FSA - which also welcomed the decision - to introduce a credible threat to banks that refused to handle the complaints, by warning them that their licence to do insurance business could be suspended until they processed them.