Recent regulatory interventions will cause PPI complaints rush in short term, says expert

Out-Law Analysis | 23 Mar 2016 | 5:08 pm | 4 min. read

FOCUS: The long-running payment protection insurance (PPI) compensation saga may finally be coming to an end, although recent regulatory initiatives are likely to accelerate complaints ahead of an expected 2018 deadline.

The Financial Conduct Authority (FCA) has proposed the introduction of a deadline by which consumers would need to make their PPI complaints, or lose their right to have the complaint assessed by firms or by the Financial Ombudsman Service (FOS). This deadline would be preceded by a consumer communications campaign, funded by firms, to raise awareness of the approaching deadline.

Ultimately, while firms should welcome a deadline date, it is expected that in the intervening period many firms will be subject to an acceleration in PPI complaints which will test the efficiencies of their internal complaints handing procedures and give rise to increased complaints handling costs. In addition, firms will inevitably be subjected to a large amount of consumer redress condensed into a relatively short timeframe – meaning that they will need to consider setting this money aside in a slightly different manner to how they have been doing so over the last 10 years.

This article will focus on the more traditional PPI complaints rather than complaints relating to the Supreme Court's decision in a case between a Mrs Plevin and Paragon Personal Finance Ltd. This is because, as the law currently stands and as the FCA's consultation confirms, the Plevin decision concerns PPI complaints where a claim could be made against a lender under the 1974 Consumer Credit Act, rather than against an insurer.

What has the FCA proposed?

Since the number of PPI complaints began rising in 2007, firms have handled over 16.5 million complaints, upheld more than 75% of them and paid in excess of £21 billion in redress to more than 12 million consumers. Despite this, some consumer bodies have asked for more to be done to assist customers who have been mis-sold PPI - while some firms have raised concerns that the current consumer redress programme has been accompanied by less positive trends.

In January 2015, the FCA announced that it would gather evidence and assess whether its approach to PPI redress was meeting the required objectives or whether further regulatory intervention was required. Then, in October 2015, the FCA announced its intention to consult on PPI interventions generally. The consultation paper followed in November 2015.

The FCA's proposals included:

  • a deadline by which consumers would need to make their PPI complaints, to be set at two years after the inception date of the new deadline rule – perhaps in the summer of 2018. This new deadline would not extend the time for consumers for whom the time limits under the FCA's existing rules for complaining to the FOS had already begun to run or had passed. Furthermore, the FOS would still retain its flexibility to be able to deal with complaints after deadlines had passed in "exceptional circumstances";
  • an FCA-led, high profile consumer communications campaign in advance of the proposed deadline to raise awareness, and to encourage consumers to check whether they had PPI and to complain if they wished to do so. This campaign would provide consumers with information on how to check whether they had PPI, clarify the PPI mis-selling issue, assist consumers in considering whether they should complain, explain how to make a PPI complaint and also dispel any existing myths or confusion about the PPI complaints process. Firms would also be expected to support the campaign with specific messaging of their own to reassure PPI consumers about how they would be treated if they were to complain;
  • a new fee rule for the consumer communications campaign. The FCA has estimated that its proposed campaign would cost around £42.2m over two years. To fund this, the FCA considers that a new fee rule should be imposed on the 18 firms which receive around 90% of PPI complaints, requiring these firms to pay this amount over two years.

Clampdown on claims management companies

It is well known that a large number of PPI complaints are made through claims management companies (CMCs). Dealing with complaints involving CMCs can often be more costly for firms than if a CMC was not involved. For example, CMCs often make standardised complaints to firms which contain generic statements and little or no evidence to support the complaint. This results in firms having to engage in protracted correspondence with the CMC in order to gain a better understanding of the complaint so that they can deal with it properly and fairly. Furthermore, CMCs often refer complaints to the FOS without good reason, which results in FOS case fees becoming payable.

The FCA paper stated that, although consumers recognised the benefit of CMC support in making complaints, "many other consumers said they had been deterred from complaining by CMCs". Concerns have also been raised where consumers have been treated unfairly by CMCs due to CMCs charging significant upfront commission fees for making the complaint, or simply for not paying customers their redress awards.

The Ministry of Justice (MoJ) is currently consulting on new caps on the fees that CMCs would be able to charge to pursue PPI complaints on behalf of individuals, as well as a ban on them charging upfront fees in these cases. However it is likely that, should a PPI complaints deadline be imposed as proposed by the FCA, firms will see an acceleration in PPI complaints brought by customers assisted by CMCs.

As part of any review of their complaints-handling processes, firms will also need to consider how they deal with CMCs in a way that mitigates unnecessary costs caused by their involvement. In addition, firms may wish to consider developing documentation that they can provide to CMCs in order to address the unclear standardised generic complaints that they see on a day to day basis. This documentation could be used to draw out the necessary complaints-related information from CMCs to allow firms to deal with the complaints as efficiently as possible.

Jonathan Cavill is an insurance disputes expert at Pinsent Masons, the law firm behind Out-Law.com.