In 2009, a lady called Susan Plevin successfully recovered her Payment Protection Insurance (PPI) in relation to a facility she had with Paragon. Once Mrs Plevin had received her PPI refund, she became suspicious regarding another transaction that she became aware of, which was that 72% of the premium went to a third party by way of a commission. She then began a legal challenge regarding this commission, which had not been disclosed to her when she took out the loan facility in 2006, which went against other rulings in the past.
Susan Plevin took out a loan of £34,000 in 2006 to which was added £5780 premium for PPI. Of that premium £4910 was taken in commission by the firms that arranged it leaving £1630 as the actual cost of the insurance. So nearly 72% of the premium went in commission. None of those figures were revealed to her and she brought a claim in 2009 that the PPI deal was unfair because the amount of commission was not disclosed to her. The Supreme Court agreed. http://paullewismoney.blogspot.co.uk/2015/10/fca-is-wrong-on-plevin-redress.html
What the Court agreed
Eventually, through the various court processes that Mrs Plevin had to follow, she successfully won a Supreme Court ruling (so basically it cannot be challenged) and Paragon agreed to it. This overturned a previous court decision and agreed with Mrs Plevin that the commission paid by the firm should have been disclosed to her. This ruling was made in November 2014. Whilst we do not know the specific details of Mrs Plevin’s case, we do understand that she received a refund of the commission that was paid to the third party because the firm did not disclose it at the time the loan was taken out and it was not disclosed within the paperwork that Mrs Plevin signed.
There is one area that the Court did not cover and that is the level of refund that anyone in this position is entitled to. This has led the Financial Conduct Authority (FCA) to become involved and decide how the ruling regarding Plevin v Paragon should be addressed.
In Plevin the Supreme Court considered whether non-disclosure of the commission paid to a lender or intermediary out of a PPI premium could make the lender’s relationship with the consumer unfair under s. 140A of the Consumer Credit Act 1974 (CCA). It concluded that although there was no regulatory requirement for firms to disclose commission there might be a tipping point where the commission becomes so large that the relationship cannot be regarded as fair (taking into account all circumstances) if the customer is kept in the dark. In Mrs Plevin’s case 71.8% of the premium she paid was taken as commission. The court regarded this as “beyond the tipping point” but did not indicate exactly where the tipping point lay. Mrs Plevin’s case had to be remitted to the County Court for that court to decide what relief if any should be granted taking into account all of Mrs Plevin’s individual circumstances and the specific facts of her case.
What the FCA have decided
Since the Court ruling of Plevin v Paragon in November 2014, the FCA has attempted to work out how to deal with the consequences of any hidden commission being paid to third parties by lenders where PPI has been applied.
Whilst the Court has decided that it is unfair, it did not decide within its ruling at what level any commission payments should be addressed. Therefore, the FCA is looking at this further and working out how best to deal with it. There are of course arguments that all of the commission paid should be refunded because none of it was disclosed. The FCA has initially come back and stated that it believes that probably between 40% to 50% of it is acceptable and that the balance should be refunded.
However, there are bound to be further challenges regarding this and lenders will probably treat these claims on a case-by-case basis. We believe, however, that any commission that was not detailed should be refunded, together with statutory interest as, let’s be honest, the lenders should not have been making this payment and, if they were making this payment, they should of course have disclosed it within their documentation at the point of sale!
Following feedback off the back of a consultation paper published in November last year, the FCA has now settled on a proposal package regarding PPI complaints. These proposals aim to bring about a definite and satisfactory conclusion to the PPI issue, by addressing the following:
Commission: profits made from the sale of PPI policies will be readdressed and included within the framework of what constitutes fair consumer treatment, as large profit shares cultivate an unfair relationship between the lender and client.
Rebates: refunds made to customers upon cancellation of a PPI policy will be taken into consideration when calculating redress for a complaint, likely leading to reduced redress amounts.
Varying commission rates: new regulations will clarify how to ensure fairness and calculate redress in situations where commission rates or profit shares have varied throughout the duration of the PPI policy.