The FCA statement and its implications for ‘Plevin’ PPI cases
On the 2nd October the FCA published their long awaited statement on the rules and guidance they are to consult on following the Supreme Court decision in Plevin v Paragon Finance.
While the statement clarifies some of the guidance which the FCA is considering it also leaves a number of questions unanswered, questions which could have serious implications for consumers and CMCs.
As has been much reported, the FCA plan to consult on a deadline for bringing PPI cases, with the proposed deadline being 2 years from spring 2016. Their statement confirms that they plan to make ‘Plevin’ PPI cases subject to that same deadline.
Therefore, CMC’s who are concentrating on their core business of processing ‘normal’ PPI claims will also have to work towards the same deadline to identify ‘Plevin’ PPI claims from their back book of business or miss out on significant revenue from their previously rejected cases.
A failure to do this and advise previous clients on the potential new avenue for redress could lead to allegations of professional negligence if those cases are later found to be statute-barred.
Definition of a ‘Plevin’ PPI claim
The FCA rules and guidance would only apply to PPI complaints where a consumer could make a claim against a lender under s140 Consumer Credit Act. The statement says that this would therefore only apply to cases where sums were payable under the credit agreement after 6th April 2008. They believe that this would apply to 42% of all single premium PPI sales, therefore a huge number of sales given the millions of claims which have previously been dealt with.
One significant point and what has been clear throughout the statements issued by the FCA and FOS is that the rules, guidance and deadlines would not apply to cases affected by the judgment in the McWilliam v Norton Finance PPI case from 2015.
This is a Court of Appeal case which ruled on ‘secret commissions’ and a breach of duty by a broker who did not obtain their customer’s informed consent to keeping commissions received from lenders / PPI insurers. The damages clients would be entitled to for such breaches are over and above the damages you would receive for the mis-sale of PPI, whether that mis-sale complaint is based on the Plevin PPI case or the usual unsuitability arguments. Many ‘Plevin’ claims, where the sale involved a broker, may have a McWilliam claim too.
It is therefore important to ensure that this complaint is properly investigated as well as ensuring any settlement wording for a ‘Plevin’ PPI claim does not also settle a claim under McWilliam. In McWilliam, the damages recovered over and above the usual PPI compensation was £5,600 plus interest, so these cases in their own right are significant and clients need to be properly advised about them.
Possibly the most controversial part of the FCA statement is how they are proposing to calculate damages due to those making ‘Plevin’ PPI complaints. Essentially, where the level of commission is over 50% of the premium then the client will only recover the element over the 50%. So, applying this to the actual Plevin case, the level of commission here was 72%. Under the FCA’s proposal, Mrs Plevin would have only got back 22% of the premium, that being the amount over 50%.
Therefore, the redress to consumers would be significantly reduced from that which the Court awarded in Plevin following the Paragon Finance PPI case. In actual pounds and pence, Mrs Plevin, under the FCA rules would be worse off by £2,075 plus interest.
Clearly such guidance being applied would also reduce the viability of CMCs running these cases as well as being at odds with the decision reached in the Supreme Court. One would suspect that future court cases would follow the rationale of the Supreme Court as opposed to the FCA guidance, therefore cases could be worth significantly more (50% of the commission) and consumers much better off if litigated rather than dealt with under the FCA proposals.
Based on the FCA’s own figures, the average level of commission within a premium was 67% and one would imagine almost all consumers were kept in ignorance of this fact. The FCA will only require them to pay back 17% of that while gaining a windfall of the other 50% even though they kept consumers in ignorance of the fact that the product being sold in no way represented good value.
Limitation and deadlines
Limitation is currently the main defence to ‘Plevin’ PPI claims and is frequently pleaded by lenders. The limitation position in relation to these cases is complex and unfortunately the usual ‘date of knowledge’ argument under s14A Limitation Act 1980 probably does not apply to claims brought under s140A Consumer Credit Act.
The FCA have remained silent on how they would deal with limitation for these claims, however, if limitation continues to run then firms need to investigate their back books as soon as possible as with every day that goes by more and more cases will become statute-barred.
The other issues which the statement is silent on is whether the ‘Plevin’ PPI argument will amount to a new claim for FOS purposes and previously rejected cases which are now outside the six month time period for going to FOS can be submitted and have the s140A claim considered. Hopefully that will become clearer in time.
The FCA plans to announce the full rules and guidance it plans to implement by the end of 2015 in order to allow a period of consultation before introducing the rules by spring 2016.
The FCA statement raises a number of compliance and commercial considerations for CMC’s with large PPI operations and the failure to deal with these issues could have far reaching and very costly consequences.
At TLW we can assist in a number of ways, from analysing previously rejected cases to establish whether Plevin or McWilliam claims exist, running such cases on behalf of CMCs, to provide advice and assistance on the implications of the decisions and FCA proposals.