What does Doran v Paragon Decision mean for PPI Claims?

The Plevin ruling has had a massive impact on how claims should be assessed by lenders and led to the FCA setting out new guidelines. They defined high commission as being more than 50% of the cost of the PPI premium. This meant that claimants who had their original mis-selling claims turned down could go back to their loan provider and demand they be re-examined.

It has since been established that on average the amount of commission paid to banks was 67%.

You may be owed the extra money over that cost if you paid high commission and this wasn’t explained to you, and if the agreement was covered by s.140a of the Consumer Credit Act 1974.

Following on from the Plevin, another case brought by Doran v Paragon Personal Finance was heard at Manchester County Court on 26 June 2018. The reason for the claim centred on the amount of commission paid.

The facts are that Christopher and Joanne Doran had entered into a £40,500 fixed term credit agreement in June 2004. Out of the amount borrowed, £30,000 was for a personal loan, the remaining £10,500 was a PPI premium.

The PPI insurance company paid Paragon £7,985 in commission and profit share that totalled 76% of the premium.
District Judge Pearson’s decision was that the Doran’s, who were mis-sold PPI, would not have taken out the PPI policy had they known how much the level of commission was.

He stated, “Without disclosure of the level of commission, the person in the position of the Claimants has simply no way of knowing that most of the money which they think they are paying to obtain the benefit of a PPI policy is in fact going to the lender.”

The Doran’s were entitled to a refund of all the PPI premiums they had paid, plus interest. By reaching this decision, Judge Pearson has rejected the FCA’s guidance. The Doran’s were awarded a total of £17,345.

Read the full Doran v Paragon judgement here

What is the effect of this case?

The impact of the Plevin case on PPI claims was significant as customers who previously had their cases rejected could ask for them to be reconsidered on the commission basis.

The Doran case could mean that lenders may face more claims, and for larger pay-outs, than previously envisaged.

It is unclear on whether Paragon Personal Finance will appeal the decision, but they are considering their position.

However, it must be noted that customers who have already been successful in their claims for mis-selling cannot claim under the Plevin rules. This will still apply after the recent Doran case. Lenders will only consider claims for undisclosed commission if the customer has been rejected for a mis-sale.

Update: On 8 November 2018, Reuteurs reported that Paragon would not be appealing the County Court ruling.

Regulators estimate that approximately 64m policies were sold, out of which around 45m were sold by banks with a net premium value of approximately £44bn and with statutory and annual interest added the total bill will be nearer the £100bn mark. No one really knows how many of these policies were mis-sold. The FCA initially estimated it affected three million people. However over 12 million people have so far received compensation.