Consumers who bought payment protection insurance (PPI) on loans and credit cards may have a new avenue for demanding compensation following a Supreme Court ruling.
The ruling held that a woman was treated unfairly because she wasn't told about the large commission she was paying for payment protection insurance (PPI). It was passed down in November 2014, but yesterday, regulator the Financial Conduct Authority (FCA) said it is dissecting the court judgment to determine whether new measures are needed.
PPI claims have normally centred on the product being either mis-sold or unsuitable. The court's ruling has deeper implications. Customers might soon be able to bring claims if they weren't told about commissions.
The FCA said it is considering whether additional rules and guidance are required for regulated lenders, including banks and building societies, handling PPI complaints.
In the meantime, the FCA says consumers mis-sold PPI should continue to complain to their lender as usual and to take their complaint to the Financial Ombudsman Service if they're not happy with the firm's response or they do not receive a response at all.
For years, MoneySavingExpert.com has told people to reclaim PPI money themselves, rather than use claims management companies, which will take around a third of the payout. (See our Reclaim PPI for Free guide to claim £1,000s back yourself.)
To date, the FCA says £18.8 billion of PPI premiums have been refunded and banks have set aside approximately £24 billion to repay those who were flogged the often worthless loan or credit card protection scheme designed to make payments for you in the event of an accident, sickness or unemployment.
So what was the Supreme Court case about?
The Plevin v Paragon Personal Finance Ltd case centres on college lecturer Susan Plevin not being told by her lender, Paragon Personal Finance, that it would take commission from her PPI payments. Here's a timeline of the events:
- It all began when Plevin received a letter from credit broker LLP Processing Ltd, which has since gone into liquidation, offering to consolidate her existing unsecured debts with a long-term loan secured on her home.
- The 59-year-old widow called to say she was interested in borrowing money to pay off her existing debts and to make some home improvements, and LLP Processing suggested she borrow £34,000 from Paragon Personal Finance, repayable in instalments over a 10-year period.
- In addition, it proposed she take out PPI for five years from Norwich Union at a cost of £5,780, which she would need to pay upfront. Plevin agreed, and she signed the loan forms in March 2006.
- However, of the £5,780 Plevin paid for PPI, 71.8% was taken as commission. LLP received £1,870, Paragon took £2,280, and £1,630 was passed on to Norwich Union. This was not disclosed to Plevin at the time.
- Plevin went to court and made a case that she was mis-sold PPI and that she should have the full premium plus interest returned to her, but Paragon said she should have only the 71.8% commission. This was when she learned of the commission and its high rate.
- Plevin took her case back to court, arguing that the relationship with Paragon was unfair because it failed to disclose it would take commission, as well as the amount taken. She said it also failed to advise her of the suitability of PPI for her needs.
- The case was heard in the Supreme Court in June 2014, with a ruling published in November 2014. The judge confirmed the relationship was indeed unfair and agreed that she didn't need PPI in the first place as she had adequate protection elsewhere.
- However, the ruling did not define what constitutes an excessive or unfair commission, and the case has been passed to Manchester County Court – which heard the original case – to decide what, if any, relief should be awarded to Plevin.