Introduction

On the morning of 26 November, the FCA published a consultation paper setting out and asking for views on its proposals regarding the handling of Payment Protection Insurance (“PPI“) mis-selling complaints.

The consultation paper contains draft amendments to various relevant FCA Handbook provisions (most notably DISP) at Appendix 1.

Subject to their assessment of the responses to the consultation, the FCA plan to commence their various proposals on the same date in 2016, with an associated communications campaign to begin soon after.

The consultation paper follows the FCA’s announcement earlier in the year that it would assess whether there was a need for further intervention in PPI complaints handling, and the statement by in October outlining its intention to consult on interventions in PPI. The consultation paper largely follows the initial remarks made in the October statement.

The consultation period will last three months (until 26 February 2016), to be followed by a policy statement by the FCA shortly prior to the new rules coming into effect.

The main proposals are as follows:

Deadline

The proposed new rules would set 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 proposed deadline is for a date in 2018 – two years after the new rules commence – except where a complainant’s failure to complain was as a result of exceptional circumstances, or where a firm consents to having the complaint assessed.

The proposed deadline would also apply to PPI complaints falling within the scope of the proposed rules and guidance on the Supreme Court’s decision in Plevin v Paragon Personal Finance Ltd (“Plevin“) (discussed below).

Consumer communications campaign

The FCA proposes a “high-profile” consumer communications campaign in advance of the proposed deadline, in order to raise awareness of the deadline and to prompt those who intend to complain, or to check whether they had PPI, to act ahead of the deadline. The campaign would also aim to provide information, clarify the PPI mis-selling issue, and sign-post consumers to appropriate help.

The FCA also proposes to ask firms to support the communications campaign with messaging of their own that would reassure consumers about how they would be treated if they complain. The consultation paper however clarifies that the FCA is not proposing to order firms to conduct mass mail-outs to customers.

Fee rule

To fund the estimated £42.2m cost of the consumer communications campaign, the FCA propose a new fee rule, applying to the 18 firms who receive around 90% of PPI complaints, requiring them to pay the sum over two years.

Handling PPI complaints in light of Plevin

The FCA proposes new rules and guidance on the handling of PPI complaints in light of the Plevin decision. The proposed rules and guidance would apply only to PPI complaints in circumstances where a claim could be made against a lender under s.140 of the CCA and an order made to remedy any unfair relationship under s.140B of the CCA.

Under the proposed rules, where a firm failed to disclose that it took commission for a PPI policy, the FCA proposes that the failure to disclose a commission of 50% or more would give rise to an unfair relationship.

“Commission” will be defined widely as the proportion of the total amount paid in respect of a [PPI policy] that was not due to be passed to and retained by the insurer.

The FCA also confirmed that it does not expect or intend to require firms to proactively review cases which are within the scope of the new rules, or to proactively review previously rejected complaints.

The FCA proposes to calculate redress for Plevin-type cases on the following basis:

  • the difference between the commission the customer paid (eg 70% of the premium) and 50% (i.e., 20% of premium in this example) plus
  • the historic interest the customer paid on that portion (where relevant) (i.e. the interest paid, in this example, on the 20%) plus
  • annual simple interest at 8% on the sum of (a) and (b). Next steps

The consultation will be open for three months until 26 February 2016. In the meantime the FCA expects firms to continue to deal with PPI complaints consistently, fairly and promptly under its existing rules.

Following the consultation and subject to the FCA’s assessment of the consultation responses, the FCA will issue a policy statement with finalised rules and guidance shortly before their start date.

If you have any queries in relation to this FCA consultation, please contact a member of the Hogan Lovells team.