Payment protection insurance (PPI) policies could be invalid if banks and credit card providers do not reveal the commission earned on the sale of the policy, according to a ruling by a Judge in South Shields.

Judge Jacqueline Smart decided that a credit card holder was entitled to have her PPI payments refunded because MBNA did not reveal that it would be earning commission from the insurance provider when it sold her the policy.

PPI is sold alongside credit cards, loans, finance agreements and mortgages to cover repayments if people are off work because of illness or unemployment. It is already in the spotlight amid evidence that it has been widely mis-sold.

However, the ruling suggests that even if a PPI policy has not been mis-sold, the failure of providers to spell out the commission received from the sale of policies could render the terms of the policy invalid.

Carl Wright, chief executive of Cartel Client Review, a claims management firm that brought the case, said: "This is the first time that a judge has ruled on this point and it has wide-reaching implications for the financial services industry.

"If there is a 'secret' commission that is not disclosed then they are in breach of the unfair terms and relations regulations of the Consumer Credit Act."

The implication of the ruling is that the consumer is entitled to know about the level of commission received by a bank, building society or credit provider when being sold a financial product such as PPI. Not being given that information is unfair.

Daniela Lipszyc, a solicitor at Ultimate Law, a law firm, said: "If you knew that someone was receiving a commission on product that was being sold to you, it would affect your view of the product. It affects the essence of the relationship."

Experts said it was extremely common for banks and credit providers to receive commission from insurance providers on the sale of PPI products to customers, but rare for this to be disclosed to customers.

The case concerned Lynne Thorius, a 49-year-old cleaning supervisor, who is now due to have up to £2,520 refunded after paying between £20 and £30 for PPI on her credit card for seven years. She may also be due the commission earned by MBNA on the sale of the policy.

MBNA had been suing Ms Thorius for £8,000 of arrears. However, she was also able to write-off the credit card debt after the Judge ruled that MBNA could not demand repayment of the debts because it was unable to produce the original credit agreement. Under the Consumer Credit Act, this renders the credit agreement invalid.

The bank was also accused of mis-selling the PPI policy because Ms Thorius insisted that she had not signed up to receive protection on her debt.

Ms Lipszyc said: "It appears that there are other significant bearings on this case in particular. It appears that it was also a case of mis-selling and there was a lack of a credit agreement, which would support Ms Thorius's case."

Which?, the consumer association, also warned that although it is the first time such a ruling has been made, as a country court Judge it would not set a legal precedent.

Adam Williams, of Which?, said: "This case is significant but it will remain up to the judge’s discretion whether the whole policy is refunded to consumers or just the commission received by the provider."

MBNA has downplayed the implications of the ruling and insisted the case hinged on a lack of documentary evidence.

"In principle, because the deputy district judge felt that MBNA had not on this occasion provided the appropriate documents to the customer and as such was not able to rely on the clauses MBNA would ordinarily seek to rely on in these cases," she explained.

"The case is a county court case and each case is decided on its own merits and on the factual circumstances of each case. This does not set any legal precedent."