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FCA could open 'new avenue' for PPI claims after Supreme Court decision, says expert


Consumers could be entitled to claim compensation for mis-sold payment protection insurance (PPI) if their bank or credit provider received a large commission on the sale of the additional product, the Financial Conduct Authority (FCA) has said.

The regulator is currently conducting a review of existing PPI complaints handling processes, and is due to announce the results and any changes needed to "secure appropriate protection for consumers" in the summer, it announced this week. As part of that review, it will also publish its views on the impact of a recent Supreme Court decision on the relationship between PPI sales and commission payments, it said.

Insurance expert Colin Read of Pinsent Masons, the law firm behind Out-Law.com, said that the Supreme Court's judgment in the Plevin versus Paragon Personal Finance case "could mean a new avenue for consumers to seek redress for PPI they purchased".

"It is entirely possible for a PPI policy to have been sold legitimately under the law pre-Plevin, but now a seller could have to repay customers if it had received a large, undisclosed commission," he said.

"The involvement of the regulator in such sales may lead to an increase in compliance costs, FOS [Financial Ombudsman Service] costs - whether compensatory or handling - and legal costs to a firm which is deemed responsible for such sales. Similarly, this could drive an increase in customer complaints and an uptake in claims management companies supporting these complaints," he said.

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, these 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. As of January 2015, firms had handled over 14 million complaints about the sale of PPI and had upheld over 70% of them, paying out £17.3 billion of consumer compensation.

The FCA announced that it was reviewing "current trends" in PPI complaints at the start of this year, in order to establish whether the complaints-handling process should continue in its current form or whether further regulatory interventions were necessary. The regulator's January announcement raised the prospect of the introduction of a time limit on complaints for the first time, although this would only happen if it could be done in a way that met the FCA's consumer protection and market integrity objectives. The FCA has already ordered firms to reopen more than 2.5 million complaints that it suspected had been wrongly rejected or undercompensated.

In November, the Supreme Court ruled that Paragon Personal Finance's failure to disclose a large 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 the 1974 Consumer Credit Act. Of the £5,780 Plevin paid as a PPI premium, 71.8% of the fee was retained as a commission for the sale. Lord Sumption said that the fact a commission payment of this size was not disclosed to Plevin made her relationship with the lender unfair.

Insurance expert Colin Read said that he expected the FCA to provide some guidance about the size of commission payment that was likely to be considered unfair.

"The Plevin judgment did not detail what the court considered to be a large commission and it is likely that the FCA will have to give some form of guidance or rule to determine what would amount to a large commission to allow for certainty," he said.

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