FCA seeks to clarify approach to regular premium PPI complaints

The FCA has published for consultation new guidance (26-page / 515KB PDF) clarifying its position on complaints involving regular premium PPI. The new guidance, if it comes into effect, would require firms to assess whether or not repeated commission payments were disclosed to the customer on an ongoing basis, and not merely at the point of sale; and whether customers should be compensated for this.

The existing rules around sales of regular premium PPI was developed in response to the Supreme Court's decision of November 2014 in the Plevin case, on the relationship between PPI premiums and commission payments. That case considered whether failure to disclose a large commission payment at point of sale made the transaction unfair under the 1974 Consumer Credit Act (CCA).

The FCA said that some firms had been rejecting complaints involving undisclosed commission for restricted credit PPI sold before 6 April 2007 as being "outside the jurisdiction" of the complaint-handling rules. However, it is the FCA's view that the payment by the customer of commission on subsequent premium payments may amount to a "thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement)" which may make the relationship unfair under the CCA.

The consultation closes on 4 September 2018, and the FCA will make a decision on how to proceed and whether to finalise new rules after this date. Should it choose to adopt the new guidance, consumers whose claims had been rejected under the existing rules would be able to re-submit their complaints for reassessment ahead of the 29 August 2019 PPI complaint deadline. The FCA said, however, that "only a small proportion of PPI complaints" would be affected by the rule change.

The FCA said that firms should not reject any complaints relating to repeated commission payments on regular premium PPI policies until it had come to a final decision on its proposed new guidance. They should explain the delay to consumers making this type of complaint. Firms may, however, uphold and make redress offers on complaints that would fall under the new guidance, the FCA said.

"The consultation provides guidance on how to ensure fair and consistent outcomes for regular premium PPI complaints," said Jonathan Davidson, FCA executive director of supervision. "It supports our aim of bringing the PPI issue to an orderly conclusion in a way that secures appropriate protection for consumers and enhances the integrity of the UK financial system."

"It is good that the FCA is thinking about clarifying the dispute resolution rules (DISP) for Plevin related complaints," said regulatory financial services contentious expert Jonathan Cavill of Pinsent Masons, the law firm behind Out-Law.com. "Firms have been left in the dark with this knotty area of the Handbook and in particular the application of the DISP rules in circumstances around repeated commission payments."

"With the long stop date fast approaching, the FCA is working hard to ensure that customers with legitimate complaints have chances to be compensated. Firms will need to ensure that their systems and controls are sufficient to handle ongoing rule changes and any increased complaints and compensation which may flow from the proposed changes," 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. Over £27.4 billion has been paid out to consumers since the FCA first introduced rules for complaining about PPI in 2011.

FCA guidance of March 2017 allows consumers to complain about undisclosed commission on PPI policies that were not necessarily mis-sold. The rule change follows the Supreme Court's decision of November 2014 that lender Paragon Personal Finance's failure to disclose a large commission payment on a single premium PPI policy at the point of sale made the relationship between Paragon and its customer, Susan Plevin, unfair as defined by the CCA. The FCA rules state that a provider which earned commission of 50% or more on a PPI policy sale and did not disclose this to the customer must repay any commission over this level.

Last week, a county court in Manchester ruled that a couple who had purchased a PPI policy from Paragon Personal Finance were entitled to repayment of the full 76% commission they had paid on the policy, plus accrued interest, and not merely the amount exceeding the FCA's 50% commission 'tipping point'. Paragon has indicated that it could appeal the decision, which is not binding on any other courts, on the grounds that it is "at odds with other cases heard recently", according to press reports (registration required).