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Banks and insurers should prepare for 'short term' PPI claim rush ahead of 2018 cut-off, says expert

Out-Law News | 27 Nov 2015 | 2:45 pm | 3 min. read

Consumers who believe that they were mis-sold payment protection insurance (PPI) would have until 2018 to claim compensation from their bank or building society under plans put forward by the Financial Conduct Authority (FCA).

Any PPI complaints deadline would be preceded by a £42.2 million consumer communications campaign, led by the regulator and funded by the 18 firms responsible for over 90% of PPI complaints, according to an FCA consultation. The exact deadline would be set as the date two years after the rule comes into force, according to the consultation paper.

The deadline would also apply to complaints brought in relation to non-disclosure of "unfair" commission arrangements following the Supreme Court's judgment in the so-called Plevin case in November 2014, according to the consultation. The FCA has proposed that commission of 50% or more on the sale of a PPI policy should be deemed unfair, although there would be some flexibility around the new rules in relation to particularly vulnerable customers.

Insurance law expert Colin Read of Pinsent Masons, the law firm behind Out-Law.com said that banks and insurers should expect the number of PPI claims to "accelerate in the short term" with a potential cut-off date of 2018 in sight.

"The FCA's proposal to embark on a campaign to publicise the cut-off period will also provide a further opportunity for the FCA to encourage potential claimants to go directly to banks and insurers rather than via claims management companies," he said.

"The activities of CMCs remain an area of focus and concern for the government and the financial services industry: it remains to be seen how they will respond to the FCA's latest proposals," he said.

PPI was intended to cover repayments due on loans or credit cards for people who could not afford them due to an accident, unemployment, sickness or death. However, the products were widely mis-sold to customers who in some cases were not told that a policy was optional or that the policy they were sold did not cover their circumstances. Firms have paid out over £21 billion in compensation to over 12 million consumers in relation to mis-sold PPI since 2007, and have upheld over 75% of all complaints received, according to the FCA's latest figures.

The FCA said that the introduction of a complaints deadline, supported by a consumer communication campaign, had the potential to encourage consumers to complain directly to firms rather than through CMCs with the associated high costs. It would also "bring the PPI issue to an orderly conclusion", reducing uncertainty for firms about their long-term compensation liabilities and helping to restore consumer trust in the financial sector, it said.

The consultation proposes the introduction of a new rule, setting a deadline for new PPI complaints two years after its start date. Consumers would have to make their complaint on or before the deadline or lose their right to complain, either to the firm or to the Financial Ombudsman Service (FOS). However, the FOS would retain its existing "flexibility" to deal with complaints brought outside of the deadline with the consent of the firm or where the consumer's failure to complain in time "was as a result of exceptional circumstances", according to the consultation.

The proposed deadline would not extend time limits for those consumers for whom the time limits under the FCA's existing rules had already begun to have run or had passed, according to the consultation paper. It would not apply to PPI complaints about matters unrelated to the sale, such as administrative errors or delays in claims handling, according to the paper.

The FCA's proposed consumer communications campaign would be run with "a new authoritative voice and appropriate messaging" to raise awareness of the deadline, and provide information to consumers about how to check if they had PPI and how to make a complaint. It would be "designed to reach all adults in the United Kingdom", through a combination of broadcast and high-reach marketing, direct marketing and digital advertising and "a programme of public relations and partnership activity" targeting harder-to-reach consumers, it said.

The deadline would also apply to claims brought in relation to non-disclosure by a lender of the level of commission on a PPI contract, as happened in the Plevin case. In November 2014, the Supreme Court ruled that Paragon Personal Finance's failure to disclose a 71.8% commission payment on a single premium PPI policy sold to a client made the relationship between it and the borrower, Susan Plevin, unfair as defined by section 140A of the 1974 Consumer Credit Act.

Redress in these cases would be set at the difference between the commission the customer paid and 50% of the premium, plus historic interest paid on that portion of the premium and annual simple interest at 8%, unless "the situation requires a different form or level of redress in order to remedy the unfairness found", the FCA said.

The consultation closes on 26 February 2016.