The case concerned the application and interpretation of section 140A of the Consumer Credit Act ("CCA"). This allows the court to reopen a credit agreement if it considers the relationship between the lender and debtor is unfair because (amongst other things) of anything "done (or not done) by, or on behalf of, the creditor". Mrs Plevin had received a PPI policy arranged by a broker. Both the broker and lender, Paragon Personal Finance Limited ("Paragon"), had received an undisclosed commission on the transaction. Mrs Plevin argued that the relationship between herself and Paragon was unfair because of:-
- the non disclosure of the commissions; and
- the failure of anyone to assess the suitability of the PPI for her needs. In so failing, Mrs Plevin argued that the broker had acted "on behalf of" Paragon.
Bound by the decision in Harrison v Black Horse Limited (2011 EWCA Civ 1128), the court of first instance and Court of Appeal both held that the failure to reveal the commission did not render the relationship unfair. In Harrison, the Court had decided that as the Insurance Conduct of Business rules ("ICOB rules"), which regulate the sale of PPI, did not impose a duty to reveal the existence and extent of a commission, that failure could not, on its own, amount to an unfair relationship. However, the Court of Appeal held that the broker's failure to conduct a proper assessment of Mrs Plevin's needs, as required of brokers by the ICOB rules, was something for which Paragon was responsible, rendering the relationship unfair.The Supreme Court, however:-
- disagreed with the Court of Appeal's finding that in the circumstances of this case the broker's failure to conduct a needs assessment could be treated as something done "by or on behalf" of the lender but
- held that the non disclosure of the existence and extent of commission paid to the broker and Paragon rendered the relationship between Mrs Plevin and Paragon unfair in terms of section 140A of the Consumer Credit Act 1974 ("CCA)", thereby allowing the Court to reopen the agreement
- in so doing held that the Harrison case was wrongly decided and should be overruled.
The Court's decision will be disappointing for lenders; although there will be relief that the Court of Appeal's view that a lender is responsible for all conduct beneficial to him has been stopped in its tracks. Of greater significance is the Court's view that the ICOB rules provide merely a minimum standard of behaviour and that compliance with them does not necessarily signify fairness. Conduct may be unfair in the eyes of the law even if there is no breach of these rules. The test of fairness in the CCA is broader and takes into account a range of factors, not just compliance with an industry standard.This will be a blow for lenders, who had welcomed the Harrison decision as closing the door on claims under section 140A where industry standards had been met. Yet again lenders may have to revisit past transactions. At this late stage in the PPI lifecycle however, customers ought to expect close scrutiny by lenders of claims not yet commenced and which may be time-barred.