The mis-selling of Payment Protection Insurance (PPI) has been the biggest issue of concern for majority the financial firms in the UK. It has caused a huge drain on resources with firms handling over 18 million PPI complaints and paying out over £25 billion in redress since 2011. It has even damaged public trust and confidence in some these banks and financial firms. So it was a relief when the Financial Conduct Authority (FCA) published final rules and guidance on the future conduct of such claims. Mainly, it was important to bring this issue to an orderly conclusion by imposing a two year deadline on consumers within which they should make a claim or they would lose on PPI compensation money owed to them.
Why do you think these new rules and guidance are needed?
The Rules and Guidance on handling the PPI complaints were enforced since December 2010. Consumers have been seeking influence from the FCA asking them for more guidance that might help the consumers understand the potential issue. The firms themselves have expressed hesitation with suspicious practices of some Claim Management Companies (CMCs) in pursuing PPI claims. This has resulted in wastage of valuable resources and time on dealing with poorly evidenced and speculative claims.
In 2014, the Supreme Court handed out a noteworthy judgment in Plevin v Paragon Personal Finance Ltd. The judgment stated that even though there are no requirements for the firms to disclose the commission paid to the lender/intermediary, there could be a tipping point where the commissions paid become so large that the non-disclosure would render the lender’s relationship with the consumer unfair under section 140A of Consumer Credit Act 1974. In Mrs. Plevin’s case, the non-disclosure of commission, which was equated, was found to be beyond the tipping point. Her case was forwarded to the Country Court, which would decide what relief (if any) should be granted. This kind of decision led to fears of inconsistency and uncertainty on how the non-disclosure of commission will be handled by the Country’s Courts.
What do the Final Rules and Guidance tell us?
The Final Rule and Guidance provide us with:
- A new rule that needs consumers to make PPI complaints within two years deadline or they will lose out on their PPI compensation pay out. This rule will come into picture from August 29, 2017 with a deadline of August 29, 2019.
- FCA will lead a communication campaign to let the people know about the deadline starting from August 29, 2017. The estimated cost of this communication campaign is £42 million, which the FCA will recover by a fee levied on the 18 firms who have been found responsible for most of the PPI complaints. The first half of the fee will be collected by April 30, 2017.
- These new rules and guidance on handling the PPI complaints will come into force on August 29, 2017.
How do these Final Rules and Guidance differ from previous proposals?
There are four major points to consider:
- Originally, FCA looked at the non-disclosure issue solely as a non-disclosure of commission. The final round of consultation concluded that “profit share” agreements should be taken into consideration. Also, the non-disclosure of any profit share sums must be taken into account as well as the non-disclosure of commission, both to identify whether any unfair relationship exists.
- The FCA knows that there are consumers who previously made PPI complaints, which were rejected by the financial lender but they may now be eligible to make further complaints. An estimate of 1.2 million customers fall into this category. This requires the firm to now identify such customers and write to them explaining the final rules and guidance.
- The originals rules and guidance of handling the PPI complaints was supposed to come into force from March, 2017. This was postponed to August 29, 2017 in the final rules and guidance, giving the firms some extra time to prepare themselves.
- These final rules and guidance will not be applicable to future PPI complaints once the deadline date is exceeded.