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Out-Law News 1 min. read

Court battle threatens PPI complaints regime

The Financial Services Authority (FSA) has promised it will vigorously defend a legal challenge to its new complaints regime for payment protection insurance (PPI).

New guidelines on how firms should assess complaints about PPI mis-selling and calculate appropriate redress are due to come into force on 1st December this year.

But on 8th October, the British Bankers Association (BBA) launched court proceedings for judicial review of the FSA’s approach and also the Financial Ombudsman Service’s approach to PPI sales complaints.

One of the main industry criticisms of the FSA's new guidance has been that the regulator is seeking to apply higher sales standards for PPI than were in the Handbook at the time the sales were made. 

In its August policy statement, however, the regulator argued that firms have always been required to abide by the guiding principles for doing business. The duty to treat customers fairly (Principle 6) and to pay due regard to customers' information needs and communicate that information in a way that is clear, fair and not misleading (Principle 7) applied whether or not specific conduct of business rules were in place at the time of the PPI sale.

But in a statement published on its website, the BBA took issue with the FSA.

"We believe the FSA is effectively creating a precedent which permits it to apply new rules to previous sales – even where those sales were regulated by other FSA rules," said the BBA. "Therefore this ruling might not only affect customers who have bought PPI, but might also set a precedent that could affect all products regulated by the FSA."

In response, the FSA said it "strongly believes that the package of new complaint handling measures outlined in policy statement 10/12 is a sensible and fair solution for consumers and the industry alike."

"And that is why the FSA will vigorously contest the BBA’s judicial review of the new complaint handling procedures for the PPI market," it said.

Consumer watchdog Which? reacted strongly to news of the legal challenge. Chief executive, Peter Vicary-Smith said last week: “It makes you wonder what planet the banks are living on. Not content with the billions they have made from this over-priced, flawed and frequently mis-sold product, the banks now seem to be trying to wriggle out of implementing changes that would ensure consumers are treated fairly."

It is not known how long the court proceedings will take. In the meantime, the FOS has confirmed it will continue to handle all PPI complaints that are referred to it in the normal way.

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