In October 2015 the Financial Conduct Authority (FCA), amid calls from consumer bodies and firms alike, began its review of the current PPI claims handling system. After 2 years of extensive research and consultations, the FCA summarised its findings in PS17/3 (the Policy Statement) which also provided guidance on the new rules set to come into force on 29 August 2017.
The FCA says that it carefully considered whether the Financial Ombudsman Service (FOS) was capable of dealing with the issue of mis-sold PPI alone, but concluded that regulatory intervention was necessary given the scale of problem. By updating the current rules and guidelines, the FCA aims to promote a consistent and fair approach to PPI claims, reflect the changing law and restore the public's trust in financial institutions.
Much like the FCA's Consultation Paper (CP15/39) on the issue, the Policy Statement focused on:
- A new deadline for PPI claims.
- A consumer-focused communications campaign.
- 'Polluter pays' campaign funding.
- Discussions relating to Claims Management Companies (CMCs) fee caps.
- The requirement for firms to write to consumers whose PPI complaint had previously been rejected.
- The changing status of undisclosed commission and profit shares.
Deadline for PPI claim
The most significant change introduced by the Policy Statement is a deadline by which all PPI claims must be submitted (subject to certain exceptions outlined below). As anticipated, the deadline is 29 August 2019. The deadline rule will come into force on 29 August 2017, which coincides with the launch of the FCA's communications campaign. It is hoped that the deadline will prompt consumers who are considering, or have not yet considered, making a PPI claims into doing so, increase efficiency in current claims handling system and bring the issue of mis-sold PPI to a timely conclusion.
However, the 2019 deadline will not apply to complaints which:
- concern the rejection of a claim on a live policy on or after 29 August 2017; and
- where that rejection was due to reasons connected with eligibility under, or exclusions or limitations in, the policy.
Where a complainant can demonstrate that exceptional circumstances prevented him from submitting an application before 29 August 2019, he may also be exempt from the deadline rule. The FCA has been unwilling to provide further guidance on the matter, and says that the decision to waive the deadline in exception circumstances is ultimately one for the FOS.
Consumer-focused communications campaign
In order to educate consumers about the PPI claims deadline (and to promote its objectives for PPI claims generally), on 29 August 2017 the FCA will launch its consumer-focused communications campaign. The campaign will run across multiple channels and will include advertisements, a helpline and various other types of PR activity. The campaigns main media outlet will be a website dedicated entirely to the issue of mis-sold PPI. This will, amongst other thing, outline the PPI issue, provide guidance on the impact of changing case law and include a template complaints form. The FCA will also be engaging in a number of partnerships in order to help deliver its message.
The FCA plans to continuously assess the effectiveness of the campaign, measuring the impact of each individual component as well as its overall success. Despite criticism from consumer bodies, the FCA is confident that a 2 year campaign period is realistic and proportionate to the issues.
'Polluter pays' campaign funding
It is estimated that the communication campaign will cost £42.2m to deliver. The FCA has adopted a 'polluter pays' approach to funding and plans to recover the costs from 18 firms, each of whom will contribute in proportion to their respective level of PPI complaints in the period 1 August 2009 to 31 August 2015. The communications campaign fee rule will come into force on 31 March 2017, with the first half of the fee collected from relevant firms in April 2017.
Discussions surrounding CMC fee caps
The FCA has resisted commenting on the role of CMCs in PPI claims, particularly in relation to calls for their fees to be capped. However, it has confirmed that it is liaising with the Claims Management Regulator (CMR) and has raised the various stakeholder concerns with the CMR. It has also recommended that the CMR introduce additional guidelines to ensure best practice amongst its members.
The FCA also hopes that by publishing consumer-friendly guidance on PPI claims, complainants will lodge their claim with firms directly, rather than through fee-bearing CMCs. This will not only diminish the role of CMCs, but will also mean that successful complainants retain all their compensation.
The requirement for firms to write to consumers whose PPI complaint had previously been rejected
The FCA found that in most circumstances generic letters do not motivate consumers to act. This hurdle, coupled with the fact that firms may not have up-to-date contact details for (ex)customers, led the FCA to the conclusion that generic letters are an ineffective prompt and therefore will not form part of its campaign.
However, this rule will not apply to consumers who, despite having already made an unsuccessful PPI claim, may now be entitled to compensation in light of recent judicial decisions (see below). The FCA has decided that firms must write letters to individuals who:
- have or had a PPI policy where the credit agreement was or is in the scope of section 140A of the Consumer Credit Act 1974 (CCA),
And, in respect of this policy, as at 29 August 2017, they had:
- made a complaint about being mis-sold PPI but the firm had rejected this, and:
- did not refer the complaint to the FOS
- referred the complaint to the FOS but it was rejected.
- had not previously made a complaint about undisclosed commission that the firm or, where applicable, the FOS had previously considered or otherwise indicated in writing that it would consider.
These letters must include:
- an explanation that the consumer can make a further complaint;
- a reference to the application deadline;
- identify the PPI lender (the firm must take reasonable steps to do so if the lender is not immediately identifiable); and
- references to further information, including directions to the FCA's PPI website.
The changing status of undisclosed commission and profit shares
The Policy Statement also details the FCA's new rules and guidelines in light of the Courts' decisions in Plevin v Paragon Personal Finance Ltd  UKSC 61 (Plevin) and McWilliams v Norton Finance (UK) Ltd (in liquidation)  EWCA Civ 186 (McWilliams). In Plevin, the Supreme Court found that where a firm fails to disclose to a client a large commission and/or profit share payment on a PPI policy the relationship is deemed unfair for the purposes of section 140A CCA. This rule applies to all new credit agreements made on or after 6 April 2007 and to all existing agreements from 6 April 2008. In McWilliams, the Court of Appeal found that such a relationship was capable of extending to brokers.
In its interpretation of Plevin, the FCA concluded that where a lender's commission and/or profit share fee exceeded 50% of the PPI premiums payable by the debtor, a firm should presume its failure to disclose this rate automatically gave rise to an unfair relationship.
During the consultation period, the FCA received a number of objections to the profit share element of the FCA's interpretation of an unfair relationship. There were concerns amongst firms that, unlike fixed-rate commission, profit shares cannot always be said to have definitively accrued. In light of this challenge, the FCA has decided that the profit share rule also includes any profit share that was reasonably foreseeable at the time the loan was made.
The FCA's broad brush approach to profit share margins means that some firms may be allocated more profit share liability than their actual policies' warrant. However, the FCA felt that there was no other practical alternative to achieving the remedies intended in section 140A CCA.
In the Policy Statement the FCA said that the changing rules do not create new obligations and liabilities for firms with respect to the potential levels of compensation recoverable by consumers. However, it is clear that these changes will undoubtedly expose firms to an increased number of potentially valid PPI claims.
Firms may find some comfort in the fact that any sums rebated to a consumer (for example when the consumer cancelled a single premium PPI policy early) can be set off against (and so reduce) any compensation payable to the complainant. A similar rule exists for rebated commission and/or profit share sums which can be used to reduce the degree to which a relationship has been deemed unfair.
What are the next steps for firms?
The FCA has committed to work closely with firms both before and during implementation to monitor and supervise the execution of the new rules and guidelines. This will include reviewing the reasonableness of (and where appropriate challenging) commission rate and/or profit share figures applied to loan products subject to PPI complaints as well as helping firms overcome any data challenges. This supervisory approach will help ensure that all firms adopt the changes to the handling of PPI complaints fairly and consistently.
The changes to PPI claims handling are considerable and will undoubtedly result in increased costs for firms, from both an administrative and compensatory perspective. However, firms should not resist these changes and instead cooperate fully with the FCA. Early implementation of the new rules is key as 2019 is set to be an unprecedented year for firms dealing with PPI claims. Not only must firms have re-assessed the eligibility of certain former complainants (and where appropriate provide compensation), but they will almost certainly face a last minute influx of claims before the 29 August deadline. Until then, firms are still entitled to explain to a complainant that they cannot provide a final response to their complaint.