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Published 11 June 2015
A recent Financial Conduct Authority announcement relating to PPI claims means that a Supreme Court decision from late 2014 will be applied by the regulator. This may mean a risk of an increase in PPI mis-selling claims in the short term, against a background of a PPI claims scenario that generally looked to be improving.
PPI related complaints to the FOS fell to approximately 205,000 in 2014/05 after a record high of nearly 400,000 in 2013/14.
The background to the latest judgment is a 2011 case, Harrison v Black Horse. This was widely considered a lender-friendly judgment and was heralded by some as the beginning of the end of PPI mis-selling claims.
The Harrisons brought a claim against Black Horse seeking compensation for the premiums paid towards their PPI policy. They claimed that there was an "unfair relationship" between themselves and Black Horse, allowing them to seek relief under s.140 of the Consumer Credit Act 1974. If they were successful, the court would have broad discretion under s.140B to make an order for a number of different remedies in the Harrisons' favour, including varying the lending agreement, discharging the Harrison's obligations under it, or for the repayment of money to them – such as part or all of the cost of the PPI.
The Court of Appeal rejected the Harrisons' claims, and in doing so set down a number of guidelines for when an "unfair relationship" will be said to exist for the purposes of s.140. These included:
An appeal to the Supreme Court was not pursued, and this became the relevant legal authority in the area. A number of cases followed Harrison and applied the guidance strictly, including the case of Plevin v Paragon Personal Finance Limited. In that case, whilst the first instance judge was dismayed at the size of the commission paid for the PPI policy, she felt that Harrison had to be followed as there was no breach of the ICOB.
However, Plevin was subject to an appeal.
The Supreme Court's decision in November 2014 changed the Courts' approach to this issue. In the Plevin appeal the Supreme Court overturned the Harrison decision. It found that the size of the commissions in Plevin's PPI product were such that the relationship was unfair.
Plevin took out a loan of £34,000 with a £5,780 PPI premium. Whilst Plevin was aware that commission constituted part of the premium, she did not know how much. On the facts, nearly 72% of the PPI premium was used for commissions, i.e. less than 30% was the fee for the product. This was not disclosed to Plevin, and the Supreme Court found that had she been told, she might well have questioned whether she was really getting value for money in the PPI cover.
The Supreme Court found that the ICOB were minimum standards to be followed, and simple compliance with them did not mean that there could be no unfair relationship. Where, as in this case, there was such an inequality of knowledge between the parties, that was likely to be an example of unfairness in a debtor-creditor relationship. The Supreme Court gave no guidance on how large a commission must be in order for it to be considered unfair, but came to the view that 70% was well beyond the mark. The cut-off point will accordingly be some way below this.
Most recently on 27 May 2015 the FCA confirmed that its overarching review of PPI complaints due later this summer will take into account the Plevin decision and consider "whether additional rules and/or guidance are required to deal with the impact of the Plevin decision on complaints about PPI". This could conceivably open the door to a further wave of PPI-related claims, requiring repayments to customers where large, undisclosed commissions have been paid.
The FCA's forthcoming report may not be all bad news, however; another point the FCA is reported to be considering is imposing an absolute time limit on PPI-related claims, which have previously been exempt from FOS time limits given that many claimants were unaware they had been sold/mis-sold PPI. This is something banks have been pressing for for some time and will obviously be a welcome development for the industry where there are exposures.
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