Firms are likely to be disappointed by this extension, but need to prepare to handle the expected increase in complaints.
The FCA proposed the new deadline in a paper published on 1 August. This paper discussed the responses it had received to a previous paper issued at the end of 2015, as well as outlining new proposals and the next steps in the implementation of new PPI redress rules and guidance.
The FCA published a paper in November 2015 following an announcement in January 2015 that it would gather evidence and assess whether its approach to PPI redress was meeting the required objectives or whether further regulatory intervention was required.
This paper proposed a 2018 deadline for consumers to make PPI complaints, after which they would lose their right to have their complaint assessed by firms or by the FOS, with some flexibility in being able to deal with complaints after that date in "exceptional circumstances".
It also proposed a consumer awareness campaign, explaining the deadline, relevant issues and encouraging consumers to check whether they had PPI. The campaign would explain how to make a complaint, and try to dispel any fears about the process. Firms would be expected to support this campaign with messaging of their own to reassure consumers about how they would be treated if they made a complaint.
The FCA estimated that the campaign would cost around £42.2 million over two years, and proposed that this should be paid for by the 18 firms who receive around 90% of PPI complaints, requiring such firms to pay this amount over two years.
Finally, the 2015 paper looked at new rules in the handling of PPI complaints by lenders rather than insurers, related to the Supreme Court's judgment in the so-called Plevin case in November 2014.
In its August 2016 consultation paper the FCA said that the industry had generally supported its proposals for a deadline, for the campaign and for how this should be funded. There were, however, some concerns, it said.
Some respondents argued that although the deadline would bring certainty, the FCA had not assessed the increase in complaints that could be expected, nor the uncertainty that this would bring to the operations, cash-flow and capital markets of small and medium-sized firms.
Others were concerned about a potential rise in speculative complaints including cases where the complainant was never sold PPI at all, and about an increase in data subject access requests (DSARs) for personal data, which would be costly for firms.
Respondents also said that the FCA should act more "robustly" on the behaviour of claims management companies (CMCs) to reduce the burdens and costs for firms.
CMCs and some consumer bodies "strongly disagreed" with the proposals on various grounds including that a deadline is premature as PPI redress is not nearing completion, on the basis that the PPI redressed so far is a minority of what was sold, the FCA said.
In response to concerns about an increase in complaints, the FCA said it has concluded that no amount of data or effort can give it reasonably precise and meaningful numbers on the future of PPI complaints whether the proposals are implemented or not.
The FCA believes that the proposals would create costs for firms and benefits to consumers that are reasonable under the circumstances. The FCA also reminded firms that if they face difficulty in dealing with the new rules then it is willing to discuss methods to manage pressures and mitigate both customer detriment and disproportionate consequences for firms or the Financial Services Compensation Scheme.
While the FCA accepts that the proposed intervention may "intensify" DSAR requests or complaints where the customer was not even sold PPI, firms in question must deal with these accurately and pragmatically, it said, including ensuring that accurate first time assessments are carried out to encourage complainant and CMC confidence that formal DSARs are not required.
The FCA pointed out that while it does not yet regulate CMCs, it has worked closely with the current CMC regulator and CMC trade bodies concerning PPI complaints and will continue to do so. If firms do suffer due to a high proportion of 'no PPI' complaints or speculative DSARs, it will work alongside the regulator and trade bodies to try to reduce these.
The FCA does not agree with the CMC and trade body position that a PPI complaint deadline would be premature, as that position "rests on a view of all PPI policies as flawed, of all sales as mis-sales, of the redress process as a kind of product recall, and of anything less than all PPI consumers receiving redress as a failure of the FCA's approach". This view is incorrect and not accurate on the basis that not all PPI products were faulty or mis-sold, it said.
After considering all the feedback it received to the 2015 paper, the FCA said it is still of the view that its rationale for proposing a deadline, and for a high profile consumer communications campaign with appropriate messaging, is sound.
From the feedback received, alongside its further work and programme testing, the FCA believes that the communications campaign will be effective in clarifying and raising awareness of the PPI issue and in prompting consumers to consider their position before the deadline, while the proposals for funding the campaign will remain the same.
The FCA has also given consideration to groups of protected and vulnerable customers and believes that the potential disadvantages of the original proposals to these classes will be eliminated by the new rules, or minimised to a level where it is reasonable and justifiable to proceed.
As the law stands, and as the 2015 paper confirmed, Plevin-related complaints should in principle be made against a lender, rather than an insurer, under the Consumer Credit Act 1794 (CCA).
The FCA said it plans to consult further on the rules and guidance on these cases before making a decision on the proposals regarding Plevin. It has asked for feedback on whether to include profit shares in the assessment of fairness and redress, whether to allow previous rebates to a customer when they cancelled a PPI policy to be reflected in any redress, and to clarify how firms should calculate redress when commission or profit share rates varied during the life of a PPI policy.
In comparison to what had been proposed in the 2015 paper, these changes and clarifications will lead to more redress being paid by firms for complaints concerning undisclosed commission, the FCA said. However, they should allow for more proportionate and fairer redress being paid under the new rules.
The latest consultation will run until 11 October 2016, and the FCA will then consider any feedback.
Assuming no substantial changes are needed based on this feedback, new rules and guidance on the deadline, the campaign and Plevin cases can be expected by the end of this calendar year.
The Plevin rules would come into force around three months later, by the end of March 2017, and the first related fees will be payable from April 2017. This would allow firms to prepare for and implement these rules.
The consumer campaign would begin at the end of June 2017, when the rules would come into effect, and the deadline will be two years later at the end of June 2019. This is a year later than commentators had expected at the time of the original consultation.
Of course, these dates are only estimates at this stage, and might change as the FCA considers feedback to its current consultation. A number of CMCs have declared that they will challenge the implementation of the proposed rules, so it is entirely possible that the deadlines may change again.
There is likely to be disappointment about the proposed move of the deadline to 2019, and firms should consider how the proposals will impact their complaints handling processes as there is likely to be an acceleration in PPI complaints brought by customers assisted by CMCs.
Firms should also consider how they will deal with CMCs in a way that mitigates unnecessary costs. For example, documentation could be developed and provided to CMCs to address the unclear standardised generic complaints firms see on a day to day basis.
Well drafted documentation could draw out the necessary information from CMCs to allow firms to deal with the complaints as efficiently as possible. This final point appears most pertinent as the FCA's recent paper has said firms must deal "pragmatically and accurately" with CMC engagement, whether a customer was in fact sold PPI or not, without intervention by the Financial Ombudsman Service.
Despite the deadline extension, firms will undoubtedly welcome the FCA's implementation of the deadlines. However, they should be aware that this is likely to bring increased complaints which will require alternative reserving structures that may test their complaint handling models.
Jonathan Cavill is a financial litigation expert with Pinsent Masons, the law firm behind Out-Law.com.