FCA to give 'certainty' to financial firms on PPI complaints, expert says

Customers would be given two years after the announcement of any deadline date to bring final claims, which would be no earlier than spring 2018, the Financial Conduct Authority (FCA) said. It intends to consult on its plans, which would also cover complaints in relation to non-disclosure of commission arrangements in line with a Supreme Court judgment in November 2014, before the end of the year, it said.

Insurance law expert Colin Read of Pinsent Masons, the law firm behind Out-Law.com, said that the FCA's statement provided the prospect of real certainty for financial firms caught up in the PPI mis-selling scandal.

"A potential cut-off date in the spring of 2018 for PPI complaints offers real certainty for businesses which have set aside significant resource to manage the very large number of PPI claims which have hit the UK banking and insurance industry," he said. "Claims brought in the UK courts are usually subject to limitation rules, and there has been disquiet for some time that the PPI problems had no potential end date."

"The FCA statement also gives an indication of its willingness to bring more certainty to regulated firms following the Supreme Court decision in the Plevin case at the end of 2014. It makes specific reference to cases where commission rates are 50% or more, and how this could create an unfair relationship for the purposes of the Consumer Credit Act (CCA). In the Plevin case, the court was critical of a commission rate of 71.8%," he said.

The FCA announced in January that it was reviewing "current trends" in PPI complaints in order to establish whether the rules, which have been in operation since 2010, should continue in their current form. PPI was intended to cover repayments due on loans or credit cards for people who could not afford them due to an accident, unemployment, sickness or death; however, the products were widely mis-sold to customers who in some cases were not told that a policy was optional or that the policy they were sold did not cover their circumstances.

To date, over £20 billion in redress has been paid out to over 10 million consumers with valid mis-selling claims, according to the FCA. However, the number of complaints is beginning to steadily fall, while a "high and growing proportion" of current claims are being made via claims management companies (CMCs) who charge consumers to use them. The FCA also said that the lack of a deadline meant that there was nothing to incentivise consumers to make their complaints promptly, and that as time went on the documentary evidence held by both consumers and firms in relation to the original sale was becoming "increasingly stale".

The introduction of a deadline, supported by a consumer communications campaign, would prompt many of those that had not yet made a complaint to do so while at the same time bringing the PPI issue to an "orderly conclusion", the FCA said. Its consultation will set out the proposed deadline and details of the communications campaign, as well its proposals for recovering the cost of this campaign from affected firms.

Any deadline would also apply to claims brought in relation to non-disclosure by a lender of the level of commission on a PPI contract, as happened in the Plevin case, the FCA said. In November, the Supreme Court ruled that Paragon Personal Finance's failure to disclose a 71.8% commission payment on a single premium PPI policy sold to a client made the relationship between it and the borrower, Susan Plevin, unfair as defined by section 140A of the 1074 Consumer Credit Act.

The FCA's consultation will include proposed rules and guidance on the size of commission retained by the lender that would give rise to a presumption that its relationship with the customer was unfair if undisclosed, as well as its proposals for redress. It is currently minded to set the rate as 50% of the PPI premium, although a smaller commission could also be considered unfair in "limited circumstances". Redress would be set at the difference between the commission the customer paid and 50% of the premium, plus historic interest paid on that portion of the premium, plus annual simple interest at 8%.