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Law firm Clyde & Co has stated that its intention is to try and launch a class action against HFC Bank, with a view to taking its action further by bringing other law suits against high street banks for the mis-selling of PPI.

If Clyde & Co proves successful in its lawsuit, it could signal a deluge of private compensation claims against retail banks.

Eric Leenders, executive director for the BBA, said PPI was a valuable product and any concerns should be brought up with the providers and not through a class action.

He said: "PPI gives people peace of mind against sudden unforeseen loss of income. If customers feel they have wrongly sold PPI products, they should take it up direct with the bank concerned. To try and approach this through a class action seems like ambulance chasing."

Anna Myrvang, solicitor for Clyde & Co, defended the move and said they have been approached by people who had tried to resolve it with HFC bank but to no avail.

She said: "We have received a number of calls on this point and we have found some people were sold policies they were not even eligible for. We would always encourage people to resolve this with the provider but several cases so far have highlighted how customers have got nowhere with this route and wish to rectify this."

Meanwhile, HFC Bank, a sub-prime lender owned by HSBC, has refuted Clyde & Co's claims of mis-selling, describing them as "wholly inaccurate".

Patrick Long, head of communications for HFC Bank, said the bank had been fined just over £1m for failing to record properly and had never been found liable for mis-selling.

He said: "We have never been found guilty of mis-selling and we have worked closely with the FSA to rectify any concerns. The fine was for the period June 2005 to May 2007 and if any of this number have concerns we urge them to come back to us so we can give their query due attention."

A Financial Services Authority (FSA) spokesman confirmed HFC's claims, although he would not comment on whether class actions were the best route for the settlement of mis-selling concerns.

Under UK law class actions require 500 people.