* BBA proposes April 2014 PPI claims cut-off point
* FSA says considering merits of proposal
* Proposal would require full public consultation
LONDON, Jan 18 (Reuters) - Britain's financial regulator is considering whether to set a deadline for customers to claim compensation for mis-sold loan insurance.
The Financial Services Authority (FSA) said on Friday it had been approached by the British Banking Association, a lobby group, to discuss the potential for an April 2014 deadline to make claims on payment protection insurance (PPI).
The proposal would see the banking industry fund a widespread advertising campaign to ensure customers were aware of any deadline and how to make a claim.
The FSA said its key consideration would be whether such a move meant customers ultimately received compensation more quickly.
"Our key priority is to ensure consumers are protected, so the FSA board would need to be convinced that any proposals would be in the interests of customers," the regulator said.
Britain's banks have already set aside 12 billion pounds ($19 billion) to compensate customers wrongly sold policies meant to protect borrowers who lost jobs or became ill. Some in the industry fear the bill could reach 25 billion pounds.
Banks are struggling to get to grips with a mounting backlog of complaints. Some 5,000 claims are being sent each week to the financial ombudsman, which deals with cases where banks and customers cannot reach a settlement.
The regulator said it would continue to hold discussions with the BBA and also seek the opinions of consumer groups and other parties. Implementing the proposals would involve changing its rules and would not be possible without a full public consultation.
Craig Lowther founder of claims management firm, MoneyBoomerang, said: "To impose a time limit on the thousands of people who have been let down by their lenders but who have yet to start a claim is unfair. Some will miss out as a result".
Reuters reported earlier this week that lenders were co-operating with some credible claims management firms to speed up the compensation process, having previously blamed them for exacerbating the scale of the problem.