The Financial Conduct Authority (FCA) has announced that it is to “consult” various parties about the introduction of a PPI compensation time limit.
The FCA issued a statement this morning containing proposals to introduce a PPI compensation time limit and proposals on how claims for PPI compensation should be handled when the customer is claiming that the amount of commission from the PPI sale was not disclosed.
The proposals are intended to be the starting ground for consultations that will continue for the rest of the year, and are significantly favourable to banks and credit card companies who mis-sold payment protection insurance to millions of customers.
The Proposed PPI Compensation Time Limit
Several times in the past, banks have approached the FCA requesting a PPI compensation time limit to restrict the amount of compensation they have to pay. On these previous occasions, the FCA has rejected calls for a PPI compensation time limit and said that, if one was to be introduced, credit providers would have to fund a significant marketing campaign to inform customers of their rights.
Now, using the excuse that the PPI complaints procedure is “open-ended”, the FCA is proposing to introduce a two-year PPI compensation time limit in April 2016. This would mean that customers who have been mis-sold PPI will have to make their claim before April 2018 or forfeit their right to compensation. Consumer protection groups are yet to comment on this proposal.
Compensation for Undisclosed PPI Commission
In the FCA´s statement, the issue of Plevin –v- Paragon Personal Finance was also raised. In this Supreme Court case, Susan Plevin successfully claimed that PPI was mis-sold to her because of the high level of commission that was deducted from her single premium (72%). Judges at the Supreme Court agreed that this created an unfair relationship between lender and borrower under §140A of the Credit Consumer Act.
The result of the court case created an issue for the FCA inasmuch as it meant customers could claim PPI compensation on the grounds that they were not informed of the percentage of their premium that was being deducted for commission. As Susan Plevin claimed, she would not have purchased PPI (and paid interest on the premium for ten years) if she was aware of how much commission was being deducted.
FCA Proposals for Undisclosed PPI Commission Redress
To address the possibility of a deluge of PPI compensation claims for undisclosed PPI commission, the FCA has proposed that only claims in which the undisclosed commission was greater than 50 percent should be considered for redress. The FCA suggests that the difference between the undisclosed commission and 50 percent should be refunded to the customer, plus historic interest, plus 8 percent statutory interest.
According to the Competition Commission´s Report of 2009, the average commission on single premium PPI sales between 2002 and 2006 was approximately 67 percent. This would make it likely that most customers who purchased a single premium payment protection insurance policy within this period would be entitled to claim compensation for undisclosed PPI commission. No figures have yet been released on commissions deducted after 2006, or how the regress scheme applies to monthly paid PPI premiums.
The Question of Comparative Redress Remains Unanswered
One of the biggest complaints about how credit providers have handled PPI compensation claims for single premium policies is “comparative redress”. Comparative redress is the practise of refunding a customer the difference between what they paid for a single premium PPI policy and what they would have paid for a monthly premium equivalent.
The FCA said in its statement that, if redress has been already been paid to a customer, the credit provider does not have to act on a further claim for compensation for undisclosed PPI commission. This implies that if a customer has already received “comparative redress”, it excludes them from claiming compensation for the non-disclosure of PPI commission – irrespective of how high the commission rate was.
Banks Not Required to Retrospectively Review PPI Sales
The final (proposed) slap in the face for the consumer is that the FCA is not going to ask banks and credit card companies to retrospectively review PPI sales that fall within the scope of §140A of the Credit Consumer Act (the non-disclosure of commission creating an unfair relationship) or review previously rejected PPI claims for compensation.
Effectively the FCA is proposing that each individual customer find out for themselves if they are entitled to make a claim for PPI compensation within the proposed PPI compensation time limit. We believe consumer protection groups might have plenty to say about this proposal!Read More