PPI, PLEVIN & PROGRESS?

PPI and the payment protection “scandal” has of course been a financial hot potato for some years now.  However, in the last month or so there have been some further developments which may impact upon its future.

What does this mean for those involved in this sector?

PLEVIN V PARAGON PERSONAL FINANCE

Mrs Plevin’s case was heard by the Supreme Court in June 2014, and it was the first time that the question of s.140 of the Consumer Credit Act 1974 (the “Act“) – the “unfair relationship” provisions, had been tested at such high judicial level.  Her case centred on the non-disclosure of the 71.8% commission levels included within the PPI premium.

Mrs Plevin’s case was that had she known that commission of this level was being paid, she would have questioned whether or not the PPI represented value for money; and therefore she may not have agreed to take out the policy.  In November 2014 the Supreme Court found in her favour and agreed that the non-disclosure of commission could be regarded as giving rise to an unfair relationship with the lender.  However, the Supreme Court did not give any guidance on what would be the appropriate level of relief that should flow as a result.

THE FCA AND PLEVIN

The decision in Plevin has had widespread importance for lenders and consumers alike.  As a result, the financial regulator, the Financial Conduct Authority (the FCA) has become involved in assessing whether there is a need for its intervention in PPI complaints handling generally.  Last month, the FCA issued a formal statement confirming that it would formally consult on the impact of Plevin by the end of 2015.

THE FCA: THE PPI DEADLINE

As part of the consultation process, the FCA has declared that it is considering introducing a time bar for consumers to bring their PPI complaints: i.e. if a complaint is not brought by (at the earliest) Spring 2018, then their right to do so would be lost.  If a deadline is imposed, the FCA has indicated that an FCA-led communications campaign will be undertaken to ensure that the existence of the deadline is made known.

However, there is concern that the imposition of an arbitrary deadline has a marked tension with the relatively recent Supreme Court decision in Plevin.  i.e. where customers have arguably only just found out about their ability to claim with regard to undisclosed commissions, why should they be given only a short timescale in which to complain.  Further, the imposition of an FCA deadline would be in contrast with the ability of a consumer to take court action in any event.

In any event, what the mention of an imposed deadline might do is create an influx of new claims regardless, so that consumers do not fall foul of an imposed deadline, whether or not it is in fact introduced.

THE FCA: LEVEL OF REDRESS

The FCA has also announced that it will be consulting on the way in which PPI complaints should be handled; along with the appropriate level of redress payable if a complaint is upheld.  It should be noted that the consultation will only apply to cases where the customer could bring a court claim under s.140 of the Act (i.e. a claim for an unfair relationship).  Largely, this means that sums should be payable under the subject credit agreement on or after 6 April 2008.

The FCA has proposed that in such circumstances, a firm should presume, when assessing a PPI complaint, that a failure to disclose commission of 50% or more, would give rise to an unfair relationship under s.140.  In those cases, the relevant redress to be paid would be the difference between the commission paid by the customer and 50% of the premium (for example, in Mrs Plevin’s case, the appropriate redress would therefore be 21.8%, being the difference between 50% and the 71.8% commission paid); plus historic interest; plus annual simple interest at 8%.

Given that currently, this is an FCA proposal only, there is considerable uncertainty as to what redress, if any, should be paid to consumers under the complaints process.  It should also be noted that the FCA’s proposal is necessarily different to the considerations that will be made by a court in determining a claim brought under s.140.  In court cases, there is a wide ranging power to order the repayment of any sum that could be said to give effect to the unfairness found.  Clearly, there is therefore a tension between the FCA’s approach; and the powers already available to the courts as part of a judicial process which allow far greater flexibility.  However, what does remain clear is that where substantial commission has been paid, further claims can be expected.

In short, whilst Plevin may have provided a level of guidance in the PPI arena, it cannot be said to provide a wholesale answer.  In the short term at least, PPI complaints will continue to be made.