Regulatory update: CP16 / 20 - rules and guidance on payment protection insurance complaints

Posted: 18th August 2016

Background

In early August, the FCA published its latest guidance on PPI complaints handling. 

Even though the package of proposals set out in CP15 / 39 will be taken forward, the FCA has now added detail to key points where greater clarity was needed - particularly around what the consumer communications campaign will look like, whether to include profit share as well as commission in redress, and the need to consult further on the implications of Plevin and adjust the proposed approach accordingly.

Implementation of the FCA’s PPI time bar is now expected to take place in June 2019, 12 months later than originally proposed.

So what are the factors that contributed to CP16 / 20, and what should firms be thinking about now in light of this latest announcement?

Key points

Communications campaign

• The FCA is consulting with two trade bodies – the FLA and BBA – in order to run the communications campaign and assure consumers
• The FCA’s communications campaign will take place over two years, and will be spilt into four blocks of four to six weeks
• Firms will not be required to proactively write to consumers identified as having been sold PPI
• The FCA will not explicitly advise customers against the use of claims management companies (CMCs), however it will reiterate its belief that complainants can manage the process themselves in most cases

Regulatory ‘creep’ and customers with different PPI products

• Given the feedback the FCA received on the precedent set by the Plevin case, they have stated that the issue of undisclosed commission will only be applied to PPI, and will not translate across to other financial products
• The FCA examines regular and single premium PPI in conjunction, and will not implement different approaches for different PPI products

Simple interest, tipping point and the inclusion of profit share in redress

• The FCA will not consult further on changes to the 8% simple interest applied to redress payments; however, firms may apply a lower level of interest if they can justify it as fair and appropriate. The FCA states, though, that they see “no relevant difference between mis-sale and undisclosed commission redress…that would justify a lower simple interest rate”
• The tipping point at which commission levels plus profit share constitute an unfair relationship will stand at 50% of the total cost of the policy. The FCA states: 
• “A firm should presume that failure to disclose gave rise to an unfair relationship if the anticipated profit share plus the commission reasonably foreseeable at the time of the sale was more than 50% of the total amount paid in respect of the PPI policy” 
• For the definition of ‘reasonably foreseeable’, firms should refer to DISP App 3.3A.4E(1)(b) 0f CP16 / 20 (on page 162 of the paper)

Regulatory next steps

The FCA will consult for a further 10 weeks on the amended package of changes. They have set a deadline of the 11th of October for responses, and stipulate that the reiteration of points from previous periods of consultation will not be considered.

To hone industry feedback on the issue, the regulator poses this question:

“Do you consider that, taken as a whole, our proposed package of measures – the proposed deadline rule, proposed consumer communication campaign, proposed fee rule, and proposed rules and guidance (as amended) concerning PPI complaint handling and Plevin – is a justified, appropriate and proportionate response to past PPI mis-selling and present trends in PPI complaints handling?”

Considerations for firms

If your firm is affected by these changes, what are the key conversations you should be having to shape your approach to the next three years?

• As consumers will be engaged intermittently and for short periods of time during the two year  communication campaign, firms should consider the flexibility of their case handling resource – it’s likely that periods of consumer engagement will result in spikes in cases submitted to the business
• Because the FCA will not advise against the use of CMCs, firms should consider how CMC activity will be impacted; for example, how the issues of bulk complaint submission may impact the firm’s capacity. An announcement on CMC fee caps is also expected – this again may drive up CMC activity prior to implementation. It’s worth bearing in mind that if your firm has experienced large numbers of unsubstantiated claims from CMCs in the past, the motivation is now there for CMCs to redouble their efforts to have claims looked at prior to the rule change
• If a fee cap is implemented, it is possible that many more CMCs will choose to register as alternative business structures with the Solicitors Regulation Authority (SRA), combining their practices with firms of solicitors. This is certainly one area for firms to closely monitor going forwards
• It should also be noted that a court case was recently brought about by a group of CMCs against the FOS over 50,000 rejected claims relating to PPI on credit cards. This serves to evidence CMCs’ keenness to find ways to push through PPI complaints, and will be all the more so ahead of the potential CMC fee cap

Given the range of considerations that come into the PPI time-bar discussion (commission and Plevin, CMC regulation and fee caps and consumer communication) firms will need to stay up-to-date with announcements in order to best diagnose which business activities will need to be undertaken ahead of 2019’s planned end to PPI.

Finally, although the FCA has said that there is no regulatory read across from Plevin into other products, it may still be worth examining your product portfolio – if only from a debate perspective. What is your approach to disclosure of commission? How transparent is this to customers? What are the impacts on your agents or other parties acting on your behalf? Do you have a common standard or does your approach differ across products?

These are all factors that, while not affecting firms in the immediate term, may still in the long term require justification.

As well as prompting firms’ individual conversations around the future of PPI, the points above will no doubt give rise to a significant amount of industry debate. In truth, these wider discussions could still have implications on the exact direction of travel for firms, and as such they should continue to keep a firm eye on developments.