Financial regulator the Financial Conduct Authority (FCA) has issued a statement regarding an ongoing court case regarding payment protection insurance (PPI). In November 2014, the Supreme Court issued a ruling in the case of Plevin v Paragon Personal Finance Ltd to the effect that the commission payment on a PPI plan created an unfair relationship.
Susan Plevin took out a £34,000 secured loan with Paragon in March 2006, via credit broker LLP Processing (UK) Ltd (now in liquidation), and also purchased a single premium PPI plan with Norwich Union. The premium of £5,780 was added to the loan amount, and was due for repayment over the 10 year loan term.
However, of the £5,780 amount, some £4,150 (72%) was taken up by commission payments. £1,870 was paid to LLP Processing and £2,280 to Paragon. £1,630 of Paragon’s commission was then remitted to Norwich Union.
Mrs Plevin settled her claim against LLP Processing in 2010 when she received £3,000 from the Financial Services Compensation Scheme, so the ongoing proceedings apply only to her claim against Paragon.
She only learnt of the existence of the commission payment, and details of which parties had received the commission, when she commenced legal proceedings alleging that the PPI was mis-sold. On learning of the existence of the commission payment, Mrs Plevin then filed a new suit alleging that an unfair relationship between lender and borrower had been created.
The Court (with Lady Hale, Lord Clarke, Lord Sumption, Lord Carnwath and Lord Hodge giving judgement) ruled that the lender’s failure to disclose the existence of such a large commission payment had indeed created an unfair relationship under section 140A of the Consumer Credit Act 1974.
However, it should be noted that the Supreme Court has not ruled on what level of commission payment is unfair, and has passed the case back to Manchester County Court for a ruling on this.
The FCA is now considering whether to issue additional rules and/or guidance regarding PPI complaints as a result of the judgement. The FCA will announce its decision in summer 2015, when it also intends to publish its latest report into trends in PPI complaint handling.
This raises the possibility that PPI complaints could rise again in the future. Complaints about PPI on the grounds of mis-selling are now falling after having peaked at 2,232,294 in the first six months of 2012, but we may now see another phase of the PPI saga, where customers complain about not being told about the commission payments.
£18.8 million in PPI compensation has already been paid by financial institutions. Common reasons for needing to pay compensation include:
• PPI policies not covering the full loan term
• Firms failing to take into account existing insurance and sickness benefits when assessing suitability of the cover
• Firms not notifying customers of key policy exclusions, such as pre-existing medical conditions
• Customers being told PPI was compulsory, or that it would improve their chances of being accepted for the loan
• Customers being sold PPI without their knowledge or consent
• PPI being sold to self-employed customers who were ineligible to claim under the unemployment section of the policy
The first two issues listed above were amongst the reasons why Mrs Plevin originally made her claim for mis-selling.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.