Pictured above: Brian Evans, head of Dispute Resolution at
Lanyon Bowdler
On 20 April, the High Court rejected claims made by the British
Bankers' Association ("the BBA") against the Financial Services
Authority ("the FSA") and the Financial Ombudsman Service in
relation to how payment protection insurance ("PPI") should be
sold.
Brian Evans, head of Dispute Resolution at Lanyon Bowdler,
reflects on what this means for consumers. He says "PPI policies
are designed to cover loan or credit card payments if the borrower
suffers an accident, sickness, or unemployment. If sold properly,
those policies can be very beneficial. However, in large numbers of
cases, they were mis-sold. For example, the borrower may not have
been told the policy was optional, or it may turn out to be
worthless, because the borrower had pre-existing medical problems
which invalidated the sickness cover, or was self-employed so the
unemployment cover was not effective. Often, these policies were
paid for with a single premium rolled up into the loan, so the
borrower has, without realising it, paid interest on the amount of
the premium as well as the loan."
The Financial Ombudsman Service reports that in the last 12
months it has received more than 100,000 PPI mis-selling complaints
(half its workload).
In August 2010, the FSA, which regulates PPI providers, issued a
policy statement giving guidance on how PPI complaints should be
dealt with. If firms found the same shortcomings cropping up
repeatedly in the way they sold PPI, they would need to consider
contacting people who had not complained, giving them the chance to
claim.
The BBA challenged the FSA statement in court. They argued that
the principles the FSA laid down were different to the guidance
which firms had to follow at the time and that it was not right to
penalise firms for not following those principles. Because the FSA
can make firms set up a "consumer redress scheme" under part of the
Financial Services and Markets Act, but has not done so, it could
not ask firms to consider contacting people who had not complained,
said the BBA.
Brian Evans says "So what does the fact the court rejected these
arguments mean for people who have complaints? In the short term,
perhaps not a great deal. The BBA has till 11th May to decide
whether to appeal, and it may well do so. Until any appeal has been
dealt with, many banks and lenders are still putting new PPI
complaints on hold. We've been contacted by one high street bank
saying that that remains their position. In the longer term though,
if the judgment is upheld on appeal, it will mean that many banks
and lenders will have to contact past PPI customers. In the court
case, it was recorded that there are probably between 3.8-11.3
million people who might have a claim, and about 15 million people
who the banks and lenders would need to consider writing to.
Overall compensation could be as much as £3.2 billion, with
administration costs to banks and lenders of up to £1.3
billion on top."
For more information about Lanyon Bowdler, please visit their
website here: www.lblaw.co.uk