Plevin and High Levels of Commission
A new ruling, called ‘Plevin’, came into effect on 29 August 2017 and deals with high levels of PPI commission charged.
In this instance commission is a reward paid to a bank or other provider by an insurer for the sale of PPI. If you had PPI, the money for this commission would come out of the payments you made for the policy.
A ‘high level of commission’ typically means it was more than half of what you’ve paid for your PPI policy.
The Plevin vs Paragon Case Summary
Susan Plevin v Paragon Personal Finance 2014 – Plevin, a retired college lecturer, was introduced to Paragon by a broker who assessed her ‘demands and needs’ for PPI. Paragon accepted the business and carried out money laundering checks but did not discuss the suitability of the insurance.
The loan, for £34,000 at 7.3% APR over ten years was regulated by the Consumer Credit Act 1974. The PPI was a single premium policy costing £5780 – 71.8% of this was commission.
Action: Plevin claimed she was mis-sold the PPI as it didn’t meet her needs. She discovered the PPI contained undisclosed high-levels of commission and argued she may not have taken out the policy had she known this as the PPI wasn’t value for money.
The Supreme Court case in June 2014 centred on an ‘unfair relationship’ under the Consumer Credit Act 1974 between her and Paragon regarding the non-disclosure of high commission within the PPI premium.
Outcome: The Supreme Court rule Plevin had been mis-sold PPI and the non-disclosure of commission was as an unfair relationship with the lender. The commission was beyond a ‘tipping point’ but didn’t explain what the limit or starting point of such a tipping point was.
FCA Guidance After Plevin Ruling
The PPI ‘scandal’ has been making waves in the financial sphere for a long while now, but the Financial Conduct Authority (FCA), the primary financial regulator in the UK, has recently revealed its Policy Statement and Guidance in its attempts to put an end to the long-running saga.
This case has widespread implications for both consumers and lenders and eventually led to an FCA decision to implement further rules in cases similar to Mrs Plevin’s. The FCA came to the conclusion that unfair relationships are caused by non-disclosure of commission, but the organisation has gone to great lengths to insist that anything introduced should not be considered a form of mandatory redress.
Following this, the FCA has intervened in the handling of PPI complaints in the future and has introduced a number of key rules.
The PPI Deadline
The FCA has announced the implementation of a deadline for PPI complaints to be raised by consumers. The regulator has decided that any further complaints must be raised by 29 August 2019, and consumers will lose their right to complain should they try to do so after this point.
This deadline will follow a communications campaign from the FCA, with this campaign intended to inform consumers of their rights. The campaign will be funded by lenders.
This deadline only applies to any complaints made directly to the lenders or referred to the Financial Ombudsman Service (FOS), so PPI complaints can still be submitted through Court proceedings. However, complaints made via Court proceedings will incur a cost, unlike the free service provided by the FOS.
The implementation of a deadline will inevitably cause a large number of new claims, as consumers fight to ensure their complaint is settled before it’s too late.
Level Of Redress Implications
The FCA has also introduced a “50 percent presumptive tipping point”, which means that a failure to disclose commission totalling 50 per cent or higher would represent an unfair relationship under s.140.
In any cases where this is found to be true, the relevant level of redress would be the difference between the rate of commission and the 50 percent threshold. This means that, taking the Plevin case as an example, since the threshold is 50 percent and Mrs Plevin’s commission was 71.8 percent, the level of redress would be 21.8 per cent. On top of this figure would be any historic interest and annual simple interest at 8 percent.
The FCA has also gone much further, creating rules regarding profit share. Under these rules, consumers are not only entitled to demand compensation for the ‘tipping point’ part of the PPI premium but can also seek any of the profit share applied to the PPI premium.
This has proven to be more difficult than first planned, with the FCA acknowledging that the majority of lenders did not record profit share on individual PPI policies. In order to apply profit share for the purpose of redress, a ‘broad-brush’ approach is required. This means the redress will be based on an estimate rather than a specific amount that would have been contributed as part of a PPI premium.
There had been arguments from consumers that the non-disclosure of commission should result in the full premium being returned. The FCA, however, has made clear that this would not represent appropriate levels of redress, and that doing so would give excessive redress.
The FCA also believe that returning all of the commission would provide a level of compensation that would be unfair to lenders.
The Double Recovery Rule
Should a consumer have previously made a complaint and won compensation for a mis-sale, they will not be eligible to claim under the unfair relationship clause. This applies to cases in which the consumer did not receive full redress.
These new rules came into effect on 29 August 2017 and are expected to cause a rise in the number of PPI claims being submitted to lenders or FOS. However, it is also possible that, due to the limited nature of the redress proposed in the Guidance, many consumers will continue to use Court proceedings in order to claim.
While the implementation of the FCA’s Guidance will add an element of certainty to proceedings, there is set to be tension between the Guidance and the approach that can be taken by the courts. One facet of this is that the Guidance is considered to be too ‘lender-friendly’ and will lead to unfairness in the treatment of consumers.
Critics of the Guidance believe that it allows claims to be settled at the lowest possible cost and as quick as possible.
While the PPI mis-selling saga is being brought to a cloe, it is clear that there is still a long way to go.
Before & After Effects of The Plevin Ruling
Before Plevin: PPI compensation was paid only if the company had given you a policy you could never claim from such as employment cover for the self-employed; or if they had lied to you by saying it was compulsory when it wasn’t.
After Plevin: Now, simply having had PPI means there is a chance you could be entitled to receive some money back. This means many more millions could be able to reclaim their cash.
Making a PPI Commission Claim Under the Plevin Ruling
Check to see if you were mis-sold originally on other grounds as your claim may be worth much more.
If you were not mis-sold, but had PPI in the past, you could still be due a pay-out. Banks now must consider the Plevin rule so if you had a claim rejected in the past, you may get a pay-out under Plevin.
The rule means that banks must now consider a Plevin pay-out in all mis-selling cases as well as writing to 1.2 million people who have had their claims rejected in the past.
You’re eligible to claim for undisclosed high commission on PPI if:
- More than 50% of your PPI premium was commission for the lender, and you didn’t know; you may be due the extra commission above that;
- Your PPI has been active at some point since April 2008;
- You haven’t already made a successful PPI claim.
Please Note: There is also the possibility of recovering the full amount of commission paid as opposed to the ‘Tipping Point’ commission we can recover for you, via an Application to the Courts if you satisfy the above criteria. However, we are not qualified to give you advice on this aspect. If this is something that you wish to pursue, please seek legal advice from a suitably qualified and experienced SRA Regulated Solicitor.
The average amount of commission charged for PPI on loans was 67%. This is what banks kept as commission from insurers, which was never mentioned to the customer. No wonder millions of people possibly are owed billions more pounds.
Standalone PPI policies from a broker possibly didn’t have as much commission so won’t meet the Plevin criteria, but it’s worth checking.