The FCA last week published a consultation paper (CP15/39) on its proposed changes to the rules for complaints relating to PPI products.
The proposals are intended to apply the principles from the judgment in Plevin v Paragon Personal Finance Limited to all PPI complaints, to address concerns regarding the widespread use by complainants of Claims Management Companies ("CMCs") and to provide greater certainty for firms by imposing a blanket deadline on the commencement of new claims.
A summary of the main proposals is set out below.
New claims to be commenced by 2018
Since January of this year, the FCA has been gathering evidence about the way in which the current PPI redress framework is operating. Its findings indicate that a high and growing proportion of complaints involve older PPI sales, where documentary evidence is more likely to be unavailable. In addition, a survey of consumers found that many of those who intend to commence a complaint have yet not done so as they felt no time pressure due to the open ended nature of the redress process.
The FCA now proposes that a 2 year time limit be imposed upon the commencement of new claims from the date of the implementation of the proposed new rules (projected to be sometime during the course of 2016). The deadline would apply to all claims other than those relating to policies entered into on or after the date of introduction of the new rule by which the deadline is imposed.
New rules on complaint handling
The Supreme Court in Plevin found that the failure on the part of the lender to disclose to the complainant the significant commissions paid to the PPI provider out of the policy premium made its relationship with her unfair under s.140A of the Consumer Credit Act 1974. No finding was made on the question whether the policy was missold – accordingly, the compensation awarded to the complainant related only to the portion of the premium which was paid to the policy provider as commission.
Following Plevin, and despite the FCA's acknowledgement that it imposed no requirement under ICOB/ICOBS to disclose commission payments, it now proposes to introduce new rules which would require firms to consider whether redress is appropriate in relation to the portion of a premium paid as compensation in all cases other than those in which it has already determined that the policy was missold and has compensated the customer accordingly.
In Plevin, the commission payment amounted to more than 70% of the premium paid. This was a significant factor in the Supreme Court's finding of unfairness. The FCA proposes that firms should presume that their relationship with the consumer was unfair where the commission was not disclosed to the customer in advance and amounted to 50% or more of the premium.
Where redress is found to be appropriate in relation solely to commission payments (i.e. where no additional finding of misselling has been made) it is proposed that compensation should be calculated as the sum of the difference between the commission the customer paid and 50%, plus historic interest and annual simple interest at 8%.
Consumer communications campaign
Proposals include a high profile communications campaign to raise consumer awareness of the 2 year deadline, clarify PPI misselling and to explain clearly how consumers may make a complaint directly, without using the services of a CMC.
The campaign is estimated to cost £42.2m, to be funded by a fee imposed upon 18 firms who have collectively received around 90% of all PPI complaints.
The deadline for submission of comments to the consultation is 26 February 2016.