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PPI Updates: Court case and FCA consultation

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09/07/2018

Walker Morris has reported previously [1] on the Financial Conduct Authority’s (FCA) proposals for the handling of Payment Protection Insurance (PPI) complaints and for dealing with the so-called ‘Plevin problem’ (that is, the uncertainty following the Supreme Court’s decision [2] that non-disclosure of a significant amount of PPI commission earned by a lender created unfairness in the lender/borrower relationship).  Banking Litigation partners Louise Power and Andrew Beck report on two recent, important updates.

Doran v Paragon Personal Finance

On 26 June 2018 judgment was handed down in the Manchester County Court case of Doran v Paragon Personal Finance (unreported).  Mr and Mrs Doran had entered into a £40,500 fixed term credit agreement in June 2004.  £30,000 was for a personal loan and the remaining £10,500 was a PPI premium.  Paragon received from the PPI insurer a total of £7,985 in commission and profit share monies, which amounted to some 76% of the premium.

The judge commented: “Without disclosure of the level of commission, the person in the position of the Claimants has simply no way of knowing that most of the money which they think they are paying to obtain the benefit of a PPI policy is in fact going to the lender”.  Holding that it was immaterial that part of the payment related to a profit share scheme as opposed to a straightforward commission and referring to the FCA’s guidance to the effect that commission exceeding 50% cannot be justified, the judge found that Paragon had failed to produce any evidence to justify the level of commission/payment received and concluded that the relationship was unfair.

Paragon tried to argue that, in any event, the claim was time-barred, looking back to the date on which the credit agreement started, and that it would be unfair to a lender to allow a potential liability dating back so far. The judge disagreed, however, noting that the Limitation Act 1980 bars claims more than 6 years after the relationship comes to an end.  He also commented that “In the balance of rights between lenders and borrowers, I see nothing either unfair or unreasonable in that.

The judge awarded repayment of the full amount of commission paid – as opposed to just the ‘over 50%’ element, plus interest. That amounted to some £17,345.

The approach adopted in this case means that lenders could face more claims, and for larger payouts, than previously envisaged. Paragon may appeal, however, and Walker Morris will monitor closely and report on developments.

In the meantime…

FCA consultation on fairer treatment of PPI complaints

On 4 July 2018 the FCA issued a consultation paper on proposed new guidance about the handling of PPI complaints.  The guidance clarifies that firms should assess commission disclosures not only at the point of sale, but also on an ongoing basis.

The FCA has noted that the proposed new guidance makes it more likely that a consumer may have a PPI complaint even if this was sold to them a long time ago, and that consumers who made a complaint and had it rejected may be able to make a new complaint to their lender.

The consultation closes on 4 September 2018 and the FCA has stated that, if it decides to proceed, a policy statement with finalised guidance will be issued, and will be immediately implemented, in Autumn 2018.

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[1] Access our earlier briefings here
[2] Plevin v Paragon Personal Finance Limited [2014] UKSC 61

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