The payment protection insurance (PPI) mis-selling saga appeared to be winding down, but firms that sold the insurance are now anxiously waiting to see if a new wave of claims lies ahead following a recent court ruling.
Banks and other providers have already allocated around £26 billion in redress for mis-sold PPI, but research agency Autonomous is now suggesting 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.
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 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. Of the £5,780 single premium, 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.
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.
The industry is now anxiously awaiting a statement from the regulator, the Financial Conduct Authority (FCA), which has been considering the implications of the Plevin case. This statement is expected before the end of the summer, when the FCA also intends to publish its latest report into trends in PPI complaint handling. Media speculation in early August 2015 also suggests that the FCA will announce a time limit for making a PPI claim at the same time.
Common reasons for needing to pay PPI compensation on cases considered so far 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.
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. In the second half of 2014, the latest period for which the FCA has released figures, there were 1,058,918 PPI complaints, but this latest development raises the possibility of complaint numbers rising significantly once again.
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.