PPI and the Plevin paradox

Posted: 2nd November 2015

In January, businesses were given a glimpse of light at the end of the PPI tunnel. The FCA promised to deliberate on a potential time bar for PPI claims as it announced it was gathering evidence on the current trends in PPI complaints.

The FCA shed more light on their intent on Friday 2nd October. Not only on their aspirations for the PPI time bar, but also how firms should apply the High Court’s ruling on Plevin vs Paragon which at one point threatened to derail the discussion on an end for PPI. How could a deadline for claims be put in place in the wake of a court ruling which could arguably set a new precedent with regards to mis-sold customers?

The FCA has now answered this question. The time bar is proposed for Spring 2018 and firms will need to consider unfair contract allegations from customers and pay redress accordingly.

DOUBLE STANDARDS?

So what exactly is it about Plevin vs Paragon that means 2018’s time bar may cause more headaches for firms? Susan Plevin’s case against Paragon goes beyond the common parameters of a customer being mis-sold a PPI policy. It was the 71.8% commission taken from the sale of a Norwich Union PPI policy that has made the limelight. This commission wasn’t disclosed to Mrs Plevin and the argument goes – and the Supreme Court agreed – that this level of commission constituted an unfair relationship under section 140A of the Consumer Credit Act 1974.

Until this latest announcement, the obvious unanswered questions were; ‘exactly what level of commission constitutes an unfair relationship?’ and ‘what will the FCA require the industry to do following the decision?’

On the former, the FCA has ruled that commission levels of over 50% will be classed as unfair. Whether or not this will be subject to change in the final guidance remains to be seen.

However, it’s the latter that causes the most confusion following the October 2nd announcement. The old Einstein adage; “as the circle of light increases, so does the circumference of darkness around it” is very apt here – the light the FCA has shed on Plevin and PPI with this recent announcement will, in all likelihood, raise yet more questions about what action firms need to take right now.

4 KEY THOUGHTS FOR THE NEW LANDSCAPE

• Firms are not required to proactively engage customers whose policies were subject to commission levels above 50%
• The ruling around this issue does not apply to any other products, which in itself gives some indication as to how inconvenient the situation is for the FCA
• CMCs, with the end seemingly in sight for PPI, will become more aggressive in a bid to make hay while the sun shines. In addition, Summer 2016 will see new rules for CMCs applied which will crack down on those companies bombarding the public and flooding firms with unsubstantiated claims. So it stands to reason that the shorter the ‘hay making’ period for CMCs, the more intently they will try to make hay
• Firms may face the prospect of having to re-work cases as partial upholds may be returned by customers and CMCs. Firms are also sure to receive some full upholds which, while not due any additional redress, will create an operational challenge

WHAT DO FIRMS NEED TO BE DOING NOW?

There is no requirement for firms to change anything prior to the FCA’s future consultation becoming rules. However, it will be important to stress test and scope out the operational and financial impacts of the statement.

Furthermore, what we do know is that where the FCA’s view of maximum commission levels may change, the Supreme Court’s ruling that 71.8% commission is too high will not. Consider performing a risk-based review of your PPI sales; do you have products that earnt over 71.8% commission? Your business might look at upholding complaints where this is the case, as you can take the Supreme Court’s decision as the first line in the sand on this issue.

If you expect a spike in volumes, consider your resource requirements now. Any uplift you experience is likely to be felt elsewhere and resource availability is likely to be low.