FCA Consultation Paper 18/18
On 4 July 2018, the FCA released a Consultation Paper providing guidance and seeking responses on PPI mis-selling complaints, and the issue of recurring non-disclosure of commissions. The consultation follows the publication in August 2017 of amendments to provisions the FCA Handbook relating to the handling of PPI mis-selling complaints (DISP App 3).
The amendments to DISP App 3 were the culmination of a series of regulatory changes following the Supreme Court decision in Plevin v Paragon Personal Finance Limited, in which the Court held that a lender’s failure to disclose the level of commission taken from a PPI sale gave rise to an unfair relationship between creditor and borrower under the Consumer Credit Act. Previous blog posts from Hogan Lovells have considered these changes in detail.
The Plevin case and subsequent cases which have come before the courts (including the Doran case discussed below) all concerned sales of “single premium” PPI products, purchased through payment of a lump sum at the time the customer took out their loan. Although the rules set out in DISP App 3 relate to complaints regarding both single premium and “regular premium” (where customers paid for PPI on a rolling basis), the FCA has determined that there is uncertainty about some complaints regarding sales of regular premium PPI.
In particular, the FCA considers that there is uncertainty about whether firms should consider recurring non-disclosure(s) (i.e. non-disclosures after the point of sale) of the existence of, or level of, commission and/or profit share (‘RND’) when assessing mis-selling complaints.
The FCA has made the following findings, on which it is consulting:
RND is a kind of omission or omissions that can make a credit relationship unfair for the purposes of s140A CCA. The FCA has proposed to issue guidance confirming this point.
As such, RND should be assessed by firms when they handle relevant regular premium PPI complaints, notwithstanding the focus on point of sale in the Plevin case and in the FCA’s PPI-specific rules and guidance in DISP App 3.
Firms should assess RND under the FCA’s general (non-PPI specific) complaint rules in DISP 1.4 – this point is likely to be of concern to firms, as it may indicate the FCA’s desire to broaden the range of cases in which a successful mis-selling complaint could be made on the basis of a firm’s failure to disclose commission. Previously, non-disclosure of commission has only been highlighted by the FCA in the context of a discrete class of complaints within scope of the CCA. It will be important for firms to monitor any future guidance on this issue.
The need to assess RND applies equally to restricted credit and non-restricted credit.
Any complaint involving an act or omission that occurred before 6 April 2007 concerning a restricted credit agreement is not covered by the FCA’s complaint handling rules where the firm concerned was not subject to the Financial Ombudsman’s jurisdiction before 6 April 2007. However, any RND omission occurring on or after 6 April 2007 would bring the complaint within scope of the FCA’s complaint-handling rules, even if the PPI was sold (and credit relationship entered into) before that date (provided the credit agreement is in scope of s140A CCA).
The FCA has asked for responses to the Consultation Paper to be submitted by 4 September 2018. Firms have been asked to refrain from rejecting PPI mis-selling complaints which may be affected by the impending guidance until the consultation process is complete.
Recent Case law – Doran v Paragon Personal Finance
The Manchester County Court has handed down a decision awarding two claimants damages based on the whole of the premium paid in respect of their PPI sale. The amount awarded was in excess of the amount that would have been awarded under the FCA guidelines for a Plevin-type case, and which would have been awarded by the Financial Ombudsman.
Christopher and Joanne Doran purchased a single premium PPI policy from Paragon alongside a loan in 2004. Paragon received a commission equal to 76% of the premium paid. The judge ruled that if the commission had been disclosed to the Dorans, they would not have purchased their PPI policy.
Under FCA guidelines (DISP App 3.7A), the claimants would have been awarded redress based on 26% of their premium (being the difference between a 50% “fair” commission and the actual commission paid), plus interest. However, the County Court judge awarded damages based on the full premium paid by the customers, plus interest.
The Doran follows a series of decisions by County Courts (including McWilliam v Norton Finance (UK) Limited, Brookman v Welcome Financial Services and Verrin v Welcome Financial Services Ltd), all of which have awarded amounts well in excess of those set out in the FCA guidelines regarding complaints about non-disclosure of commissions.
The effect of these decisions is that claimants are likely to be incentivised to pursue complaints in court, given the higher awards which can be obtained. It is currently also unclear whether courts intend on respecting the deadline of 29 August 2019 set out in DISP as the final date by which customers must submit their PPI mis-selling complaints.
FCA publicity campaign
In June 2018, the FCA issued statistics regarding consumer engagement with its publicity campaign (ft. Arnold Schwarzenegger’s head) which has been rolled out ahead of the August 2019 deadline for the submission of PPI mis-selling complaints.
1,698,595 users accessing the FCA’s PPI website, with 5,701,499 page views to 31 May 2018. However this has translated into relatively few calls to the FCA’s PPI helpline, with just 26,445 calls made in the period 29 August 2017 to 31 May 2018.
With just over 12 months to go until the PPI deadline, firms can expect further publicity from the FCA over the coming months as consumers are asked, in the words of Arnie, to “make a decision!”.