05Oct

The Financial Conduct Authority (FCA) has proposed a deadline for payment protection insurance (PPI) complaints of spring 2018. At the same time the regulator has paved the way for a new wave of PPI claims based not around potential mis-selling, but on the grounds that commission amounts were not disclosed.

The FCA will commence a consultation before the end of 2015 into the idea of a cut off. Their proposals include conducting a significant communications campaign to inform customers of the impending deadline. The costs of this campaign would be met by authorised firms, although it is not clear at present which firms would be required to contribute, or how much this might cost.

The main justifications given by the FCA for its decision are: to prompt consumers who have been considering making a claim into actually submitting a complaint; and to reduce long-term liabilities for firms that sold the insurance.

The FCA has also given its reaction to the recent Supreme Court judgement in the case of Plevin v Paragon Personal Finance. On learning of the existence of the large commission payment, Mrs Plevin filed a lawsuit alleging that an unfair relationship between lender and borrower had been created under section 140 of the Consumer Credit Act.

A consultation will now also be conducted regarding the implications of this ruling, and here the FCA is proposing to impose new rules.

The new rules would apply where a claim for mis-selling under the existing PPI rules would not be justified, and where the lender was not the firm that actually sold the PPI. In the main, a claim could be brought alleging an unfair relationship where the commission is 50% or more of the premium charged. Any portion of the premium that was not passed to the insurer would be classed as commission.

Firms would be expected to pay redress based on the amount by which the commission exceeded 50% (in the Plevin case the commission was 72% of the premium), with additional payments being due for the interest paid on the excess, and for annual simple interest at 8%.

There would be no requirement for firms to re-assess previously rejected PPI complaints against the new criteria. The FCA estimates that 42% of single premium personal loan PPI or credit card PPI plans could be covered by the Plevin judgement.

Claims brought as a result of the Plevin ruling would also need to be submitted by the 2018 deadline.

Banks and other providers have already allocated around £26 billion in redress for mis-sold PPI. Research agency Autonomous had suggested that a further £33.5 billion – as a worst case scenario – could be payable as a result of providers’ failure to disclose commission payments. Barclays, Lloyds and Royal Bank of Scotland have already warned their shareholders about the possible implications of the ruling. However, with the ‘excessive commission’ barrier having been set as high as 50%, and with firms not required to conduct a historic review, this worst case scenario is unlikely to materialise.

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.