The FCA has finalised its plans to place a deadline on PPI complaints. FCA policy statement (PS17/3) states the deadline as 29 August 2019.

The FCA has also issued final rules and guidance for firms regarding how to handle complaints following the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd (Plevin)[1]. Consumers may have new grounds to complain about PPI if the failure to disclose that commission made the relationship unfair.

Overview of measures in PS17/3

  • A new deadline for PPI complaints. The new rule – which states that consumers will need to make their PPI complaints or lose their right to have them assessed by firms or by the Financial Ombudsman Service – enters into force 29 August 2017, with the final deadline of 29 August 2019. This deadline does not apply to sales complaints.[2] Note that the 29 August 2019 deadline is being challenged by a claims management company seeking judicial review of the FCA’s new rules[3].

  • An FCA-led consumer communications campaign. Designed to inform customers of the deadline, which will commence when the deadline rule enters into force on 29 August 2017. The FCA is to provide further information about the campaign to allow firms to make preparations ahead of the campaign launch.

  • New rules and guidance in light of Plevin. The rules and guidance enter into force on 29 August 2017.

New rules and guidance in light of Plevin

In Plevin, the Supreme Court considered the commission Mrs Plevin had paid and how this might compare to a tipping point of potential unfairness as a percentage of the total sum she paid for the PPI including insurance premium tax.

The FCA’s final rules and guidance are set out in two Handbook Instruments.

Scope of the rules and guidance

In earlier consultations, the FCA proposed that the rules and guidance following Plevin should apply:

only to PPI complaints where a claim could be made against a lender under s.140A and an order made to remedy any unfair relationship under s.140B of the CCA: that means in particular that the rules and guidance will apply if the PPI states it covered or covers a credit agreement where sums are payable, or capable of becoming payable, under it on or after 6 April 2008 […] to any complaint meeting this criterion, regardless of the other characteristics of the PPI, credit agreement, or nature and relationships of businesses behind these”.

In PS17/3, the FCA reiterated that they are to keep regular premium PPI, including running-account and restricted-use credit agreement PPI, within the scope of these rules and guidance.

Writing to complainants following Plevin

The FCA expects firms that sold PPI to write to previously rejected mis-selling complainants who are eligible to complain again in light of Plevin, in order to explain this to them. The FCA estimates this to be about 1.2 million letters.

Assessing merits – the two-step approach

The FCA requires firms to take a two-step approach. The rules and guidance concerning Plevin are a ‘second step’ within the existing PPI complaint handling rules and guidance. The rationale behind the two-step approach is that Plevin deals with a narrow question. This is different to the main question underpinning the existing rules which is, “did the conduct of the firms that sold the PPI fall so short, at the point of sale, of what we would expect under our Principles and ICOB(S) rules, that it made the sale substantially flawed?” The FCA believes this approach reflects the difference fairly for consumers and firms.

The FCA is of the view that firms should not take a narrow interpretation of a complaint. For cases in scope of s.140A, a firm that was both seller and lender should undertake Step 2 even if the complainant did not previously raise the non-disclosure of commission point.

Profit share

The FCA’s approach includes profit share as well as commission. The FCA, in CP16/20, defined profit share[4]:

Arrangements (including contractual) that firms have to potentially receive back some of the amount paid in relation to a PPI policy which had initially gone to the insurer. For example, such arrangements might include amounts paid to cover potential claims on policies, but which remain unspent after a fixed period, for example because actual claims did not exceed certain levels.”

The FCA recognises that firms will not have assessed or recorded actual profit share in terms of actual policies or accounts. As such, the FCA has added Handbook guidance that “actual profit share” means a reasonable estimate of the profit share that was paid under profit share arrangements that is notionally attributable to the PPI policy. The estimate:

“[…] should take into account all relevant matters, but should generally be based on the notional allocation to a policy of the profit share paid in respect of the relevant book of similar policies in the relevant period, with such allocation to be made in proportion to that policy’s contribution to that book’s total premiums in that same relevant period. We accept that most firms probably cannot sub-divide their book of policies and book level profit share in terms of a group of policies incepted in the same year.”

In summary the FCA expects firms to assess whether the commission rates which it knew or could reasonably foresee at point of sale (plus anticipated profit share) was:

  • For  single  premium  PPI,  more  than  50%  of  the  total  amount  paid  by  the consumer in relation to the policy, or

  • For regular premium PPI, at any time in the relevant period or periods, more than 50% of the total amount paid by the consumer in relation to the policy in respect of the relevant period or periods”

50% tipping point

The FCA clarified the approach to redress and presumption of fairness:

The firm should presume that failure to disclose commission gave rise to an unfair relationship under section 140A of the CCA if the anticipated profit share, plus the commission that was known or reasonably foreseeable at the time of the sale, was more than 50% of the total amount paid in respect of the PPI policy […]”

The 50% tipping point is rebuttable.

[…] any decision by the seller (at Step 1) to pay redress (on the basis that, but for the sales failings, the complainant would not have bought the PPI they bought) extinguishes any claim for redress the consumer may have at Step 2 (concerning undisclosed commission). This is so, regardless of whether the Step 1 redress paid was less than the full return of premium (because, for example, it was alternative redress or reduced because of a previous successful claim on the policy). It is also the case whether the seller and lender are different firms or the same.”

In light of Plevin, the FCA believes that it is better to maintain the tipping point and assessment of commission and profit share on a gross basis (as a percentage of the total the consumer paid including insurance premiums tax).

The FCA does not believe that a full account reconstruction for calculating historic interest gives disproportionate outcomes for mis-selling complaints at step 1 / step 2 redress.

Next steps

The new rules and guidance in DISP enter into effect on 29 August 2017, and the consumer information campaign will commence on the same date.

When the new rules and guidance on PPI complaints and Plevin enter into force, the FCA expects firms to provide prompt, fair final responses to complainants who have been ‘on hold’. Until that time, firms will be expected to explain to complainants – under the FCA’s existing complaint handling rules – that they are not yet able to provide a final response for complaints that could be affected.

The FCA intends, before and after this package of measures enters into effect, to take forward robust proactive supervisory engagement with firms that are in scope of these rules and guidance. The FCA has reiterated that it will continue to monitor firms to ensure that they deal fairly and promptly with PPI complaints, including cooperating with the Financial Ombudsman Service, until all complaints made in time have been appropriately assessed and complainants receive a response. The FCA will take action where firms fail to act fairly.

An interim report is to be published after one year, including an update on supervisory activity. A final report will be published after the 29 August 2019 deadline.