On the morning of 2 March 2017 the FCA published PS 17/3 (the “Policy Statement”), its response to feedback on its proposals regarding the handing of Payment Protection Insurance (“PPI“) mis-selling complaints. The FCA’s original proposals were set out in CP 15/39 (see our blog post), and a further consultation was issued in CP 16/20 (see our blog post).
Following further feedback from firms, trade bodies, consumer organisations, claims management companies (“CMCs“) and individuals, the FCA still broadly considers that the proposed package of measures set out in the consultation papers should be taken forward. The amendments to the DISP Rules have now been finalised, and will come into effect on 29 August 2017.
There are also some important new developments in the Policy Statement. These include a requirement for firms to make contact with complainants who have previously had their claims rejected, expanded commentary on the inclusion of profit share in the calculation of “commission”, and a carve-out from the deadline for future complainants in a narrow range of circumstances.
The final deadline for making new PPI complaints has been set as 29 August 2019. The FCA will run a consumer communications campaign beginning in August 2017 to draw this to consumers’ attention (see more below).
The FCA does not consider that the imposition of a deadline is bringing the PPI issue to a premature close – firms will have spent a decade handling significant numbers of claims by the time the deadline expires, so consumers have had adequate time in which to complain. Additionally, the FCA has suggested that it would be unhelpful and potentially disadvantageous for consumers if there were to be a “prolonged decline of PPI complaint volumes”.
There is a limited exemption from the deadline for complaints regarding rejected claims on PPI policies which were “live” as at 29 August 2017, and where the rejection of the claim was due to reasons connected to the sale, such as ineligibility, exclusions or limitations.
Consumer communication campaign
Research conducted by the FCA has shown that consumers have “switched off” to messages about PPI and the Policy Statement notes the importance of re-engaging potential claimants. In order to achieve this objective, the FCA will be taking an approach similar to other government behaviour change campaigns, including broadcasts and digital media.
Most respondents to the consultation broadly agreed with this approach, although some respondents had concerns and suggestions, such as ensuring appropriate provision for vulnerable customers and covering how to check for PPI as well as how to complain.
Cap on CMC fees
The FCA noted concern from the industry regarding CMC fees, and a desire for the CMC fee cap being considered by the Claims Management Regulator (“CMR”) and the Ministry of Justice to be implemented at the same time as commencement of the FCA publicity campaign.
Although it is not able to comment on the proposed fee cap, the FCA has passed on the concerns raised in the consultation to the CMR, and will work closely with the CMR to monitor CMC activity.
Calculation of redress
Despite recent court decisions where customers have been awarded the full measure of redress in Plevin-type cases, the FCA maintains that redress due as a result of failure to disclose an unfair commission should be based on the difference between the commission and profit share paid and a “fair” commission of 50%, save in exceptional circumstances.
The FCA has expressly acknowledged that its approach in the Policy Statement is not entirely consistent with the approach taken by the courts. Consumers could in theory recover the total amount they have spent in the courts, whereas the FCA and the Financial Ombudsman Service (“FOS”) will calculate the amount due as a differential between the amount paid out and what is deemed to be a fair commission. This could result in claimants and CMCs being more inclined to pursue claims through the courts rather than through the FOS.
Contact with complainants
The FCA does not consider it necessary for firms to contact all consumers directly on a generic basis to inform them of the deadline for PPI complaints. Instead, it suggests that firms should be targeting consumers who have previously had claims rejected and writing to them personally, with letters to contain appropriate messaging about the customer’s right to complain again in relation to Plevin.
The requirement to revisit complaints is limited to contact exercises only, and the FCA has explicitly said that firms will not be required to proactively revisit previously rejected complaints, unless a customer resubmits their claim.
Treatment of profit share
In CP 16/20, the FCA modified its approach to include profit share as well as commission in sums payable to claimants. This was because, amongst other things, it was deemed that firms could reasonably foresee that they would receive material profit share sums, and including them would reduce the likelihood of significant arbitrary differences in outcomes of complaints between firms.
Most of the consultation respondents disagreed with this approach. However, the FCA has maintained that profit share will be included in order to “run with the grain” of Plevin.
The FCA maintains that the unfairness of any commission in place at the time of sale is based on whether it was “reasonably foreseeable” at the time of the sale, with regard to all relevant factors, that the commission and profit share would exceed 50%.
The FCA also acknowledges that the assessment of redress for non-disclosure of unfair commissions should remain based on the actual commissions and profit share taken, where these were in excess of 50%.
There is no reason in principle for different treatment of single premium and regular premium PPI for the purposes of identifying whether the commission/profit share taken was unfair. The FCA is considering whether it would be helpful to provide worked examples of how profit share should be dealt with in redress calculations.
Firms will need to prepare for an increase in the number of PPI complaints as a result of the new deadline. This is likely to be the case particularly once the FCA begins its consumer communication campaign.
It is necessary to start preparing for the process of contacting former complainants to notify them of the deadline and give them the opportunity to resubmit their claims. This requirement will commence on 29 August 2017.