FCA's sop to banks over PPI enters new stage
Chris Hamblin, Editor, London, 29 February 2016
The consultative period for the Financial Conduct Authority's proposal to impose a time-limit for complaints about the mis-selling of payment protection insurance has now closed, but complaints from consumer groups are still coming in.
The banking industry was rocked in November 2014 by the Supreme Court Judgment in Plevin v Paragon Personal Finance Ltd. The court ruled that a failure by a lender to disclose to a client at point of sale the large commissions payable out of the PPI premium made the relationship between the lender and the borrower unfair under section 140A Consumer Credit Act 1974. This - and, some would say, the outright victory for Britain's main ruling party at the polls in the summer - helped form the backdrop to the FCA's 'bank-friendly' stance of today.
Adam Samuel, the London compliance consultant, has written: "The sad thing is that PPI in its original form saved a considerable number of families from repossession in the early 1990s. However, the single premium version sold with loans and the add-on product marketed with credit-cards has never been designed appropriately except for the purposes of lining the pockets of the people who were selling it. Neither the FCA nor the Financial Ombudsman Service has completely grasped the fact that one cannot sell a defective product in a compliant way."
Other market observers have been more blunt. Martin Lewis, the influential personal finance journalist-turned-broadcaster, has written: "The FCA has proposed time limiting PPI claims. Supposedly this is meant to be a boon to consumers, yet in reality this is just a sop to banks to help them close off the huge liability that their fraudulent selling of PPI has been. A PPI complaints time-bar would...strip consumers of the right to complain for being mis-sold to in Britain’s largest ever reclaim process. It is staggering that there have been no prosecutions for fraud after this £22 billion racket – and now even the regulator wants to brush it under the carpet. This is an anti-consumer move.
“Yet banks haven’t just mis-sold PPI, they’ve mishandled PPI complaints. There is still an almost 70% uphold rate for those who are unsatisfied by the banks’ handling of their case and who go on to the Ombudsman. Banks clearly use an initial rejection as a tactic to avoid paying out, knowing many consumers won’t take it all the way. There should be no time-bar for any bank with an uphold rate above 20%.
“Worse still. As part of this consultation a brand new and complex regulation over the Plevin case is due to come in, which could mean potentially hundreds of thousands if not millions more people are due to get their money back, and yet against all natural justice the FCA plans to put a time-bar on this too, even before it’s started. This is plainly ridiculous and even if a time-bar is imposed Plevin cases should not be covered by it.
“However, as it is well known that this consultation is a farce in terms of the time-bar – it is going to happen anyway – we also need to address the way to limit the damage of this move. It is absolutely imperative that for a time-bar to happen it is communicated to everyone who may be owed their money back.
“A mass-media campaign [by the regulator] is crucial – but that is only one element of the communication plan. Many people are unaware they have PPI, as one core way it was mis-sold was adding it when people refused. Therefore for a time-bar to work, every single person who has had PPI must be written to by their bank to inform them of the details. Without their working in conjunction, the only thing this time-bar will do is be a liability limiter for the banks and building societies which mis-sold this product, at the cost of the people who were defrauded."