The borrowers entered into a fixed sum loan agreement with a bank and took out PPI cover with a third party insurer at a cost of £11,000, which they borrowed from the bank. The borrowers argued that the relationship was unfair because: the bank paid a commission out of the premium so that the sales person received a bonus; the PPI was expensive; and instead of advancing £11,000 to pay the premium, the bank should have offered to lend more money to them without selling the PPI. The court decided that the agreement was fair on the basis that:

  • Commissions paid by the insurer to the lender were widespread and meant that it was not necessary to charge borrowers for the provision of the service. Further, the fact that the salesperson would receive a bonus did not make an agreement unfair. Indeed, such a bonus existed "to incentivise her to carry out the procedures properly".
  • It was clear that the borrowers "knew that they were being asked to pay and decided to do so" and a consumer is "fully able to decide whether something is sufficiently attractive to make it an item that he wished to buy". The simple fact that the PPI was expensive did not make the relationship unfair.
  • A lender is under no obligation to tell prospective borrowers that, instead of using credit to pay for the premium, they could borrow more.

Norman Vernalls & Ann Vernalls v Black Horse Limited


HHJ Harris QC

4 November 2010