The Financial Conduct Authority (FCA) announced on Wednesday 7th November 2018, that it would launch a consultation on new rules, which will make lenders inform customers that they can make new compensation claims on mis-sold PPI, even if they had previously been rejected.
The proposed rules will require firms write to around 150,000 specific PPI complainants, who they originally turned down, to let them know they can make a new complaint about non-disclosure of commission, until the deadline of 29th August 2019.
Such rules are intended to clarify uncertainty that has persisted since the Supreme Court handed down judgement in the case of Plevin in 2015. The Plevin judgement states that; failure to disclose at point of sale, that a large commission was payable out of the PPI premium, can make the lender-client relationship unfair under the Consumer Credit Act. The Court said that customers deserved compensation if they had not been told that a substantial part of their premiums went towards commission paid to the banks that sold the policy.
Banks’ Bills for PPI
According to the FCA’s most recent statistics, more than £32.6bn has been paid out, with the average pay-out being approximately £2,750. The scandal of mis-selling of PPI is the costliest instance of mis-selling in the UK.
The FCA estimate that the average pay-out for this set of customers under the proposed new rules, could be between £400 and £1,100 each for upheld claims, with an additional administration cost of nearly £4m for banks.
UK Finance, the banks’ trade body, said that it had liaised closely with the FCA “to ensure the right balance is struck between ensuring that the process is not overly bureaucratic, whilst collecting all the details required to consider a complaint”.
Following the consultation, which closes on 7th December 2018, the FCA will aim to issue a policy statement with finalised rules in late January 2019, if it decides to proceed with the mailing requirement.
Meanwhile, the FCA has also issued final guidance clarifying that companies should assess commission disclosures, not only at the point of sale, but on an ongoing basis, and that this should be assessed under the Regulator’s general complaint handling rule.
The FCA argues that “lenders must assess all disclosures since 2007”.