Earlier in the year, the Financial Conduct Authority (FCA) announced that it would be assessing whether there was a need for further intervention in PPI complaints handling generally (Note 1), and in light of the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd (‘Plevin’) specifically (Note 2), and that we would set out our views and any next steps in the summer (Note 3).
The FCA has now decided to consult, by the end of the year, on the introduction of a deadline by which consumers would need to make their PPI complaints or else lose their right to have them assessed by firms or by the Financial Ombudsman Service (the Ombudsman).
The FCA intends to consult on a deadline falling two years from the date the proposed rule comes into force - which, subject to consultation, would not, we anticipate, be before spring 2016 – hence PPI consumers would have until at least spring 2018 to complain (Note 4).
The consultation will also set out our plans for a proposed FCA-led communications campaign designed to prompt consumers to complain in advance of that deadline. This will include a proposed fee rule concerning the funding of the proposed communications campaign.
The FCA has also decided to consult on proposed rules and guidance concerning the handling of PPI complaints in light of the Supreme Court’s decision in Plevin. Such complaints would also be subject to the proposed deadline.
We will set out the full detail of these proposed rules and guidance, the evidence we have considered, our reasons for proposing them, and our assessment of their costs and benefits, in the consultation paper we will publish before the end of the year. The following summary is intended to cover the key proposals that we will consult on but, as with any consultation process, what we have set out in this Statement may ultimately be subject to change.
We have decided to issue this detailed Statement now, in advance of the consultation. We note that there has been widespread speculation about our intentions on PPI following our announcements of January and May 2015.
PPI sales fell dramatically after early 2009 (Note 5). The current rules and guidance about PPI complaint handling have been in place since December 2010.
Since January, the FCA has been gathering evidence from firms, consumers (via online surveys and discussion groups) and other stakeholders about the PPI landscape and whether it is changing. The FCA has assessed whether the current approach is continuing to meet its objectives of securing appropriate protection for consumers and enhancing the integrity of the UK’s financial system.
The current complaints framework and our supporting supervisory work has resulted in fair redress being paid to large numbers of consumers who were mis-sold PPI in the past. Over £20 billion redress has been paid to over 10m consumers so far (Note 6).
However, more recently, the large scale payment of redress has been accompanied by other trends. For example, the evidence we collected indicates that:
Around three quarters of the consumers surveyed have heard of PPI as a product (74%), most of whom (77%) say they are aware of problems or issues with it.
The FCA now considers that there is a case for intervening further in PPI and that introducing a deadline and running a communications campaign would:
The FCA also considers that such an intervention may encourage more consumers to complain directly to the firms, rather than using and paying claims management companies.
Overall, we take the view that a deadline and communications campaign would help bring finality and certainty in a way that advances the FCA’s operational objectives of securing an appropriate degree of protection for consumers and protecting and enhancing the integrity of the UK financial system.
The FCA has also decided to consult on rules and guidance about how firms should handle PPI complaints fairly in light of the Plevin judgment concerning a claim under s.140A of the Consumer Credit Act 1974 (Note 7) about the non-disclosure by a lender of the level of commission on a PPI contract. The proposed deadline would also apply to the handling of these complaints.
The FCA considers that the proposed rules and guidance would reduce uncertainty and enable firms to continue to take a fair and consistent approach to handling PPI complaints, whilst making it easier for the FCA to act if it becomes concerned that firms are not handling PPI complaints appropriately. Rules and guidance would also provide a clear approach which the Ombudsman could take into account when considering relevant PPI cases.
The proposed rules and guidance would only apply to PPI complaints where a claim could be made against a lender under s.140A. That means that sums must have been payable (or capable of becoming payable) under the underlying credit agreement (which the PPI covered or covers) on or after 6 April 2008 (Note 8).
Where a complaint from a consumer against the firm that sold the PPI would be upheld under our current PPI complaint handling rules and full redress paid, our proposed rules and guidance would not require a firm (whether seller or lender) to consider the complaint further and so would not result in any further redress being paid to the complainant.
However, our proposed rules and guidance would be relevant, where:
The proposed rules and guidance would say that a firm should presume, when assessing a relevant complaint in respect of a PPI policy covering a credit agreement under s.140A, that a failure to disclose a commission of 50% or more gave rise to an unfair relationship under s.140A.
For this purpose, and regardless of the precise details of firms’ external business arrangements or internal business models and structures, we propose to define “commission” as the proportion of the total amount of premium paid in respect of the PPI contract that was not due to be passed to the insurer.
The proposed rules and guidance would also consult on providing for this presumption to be set aside in certain limited circumstances.
We propose also to consult on limited circumstances where the non-disclosure of commission of less than 50% could be regarded as giving rise to an unfair relationship under s.140A.
The proposed rules and guidance would require a firm to pay redress where it concludes that an unfair relationship under s.140A has arisen. The FCA will consult on the key elements of redress being:
This is redress that would not be paid under our existing rules and would thus be a direct financial consequence of our proposed rules and guidance.
The proposed rules and guidance will also provide for firms to consider, when they have identified that an unfair relationship within the meaning of s.140A was created by the non-disclosure, whether, in the particular circumstances of the case, they need to pay more redress than under this approach.
We will include our assessment of the costs and benefits of the proposed rules and guidance in our consultation. However, to provide some initial context and indication of their potential financial impact, we note that:
We do not propose to require (or otherwise expect) firms to proactively review PPI sales falling within the scope of s.140A CCA or to proactively review against the new rules and guidance previously rejected PPI complaints.
The FCA will publish its consultation paper on the deadline for PPI complaints and on rules and guidance in light of the Plevin decision before the end of 2015. The consultation paper will include full details of the various proposed rules and guidance summarised above, the evidence we have assessed, our reasons for proposing them, and our assessment of their costs and benefits. Our proposals will be subject to a full consultation process and as such what we have set out in this Statement may not represent the final position following that consultation. We will consider any comments on this Statement as part of the consultation process.
We will continue to monitor firms’ handling of PPI complaints under our current rules. We expect firms to deal with PPI complaints promptly and fairly. We will take action where firms fail to do so.
Consumers who are unhappy about PPI should continue to complain to the firms concerned and to the Ombudsman if they are not satisfied with the response. Making such complaints is free to consumers and most people should not need to use a claims management company to assist them. Consumers who intend to complain about PPI should do so as soon as possible.
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