The banks had hoped that the mis-selling in relation to Personal Payment Protection (PPI) has now reaching its conclusion. However, a recent decision by the Supreme Court has potentially opened the door to more compensation claims.
The decision in the case of Plevin v Paragon Personal Finance Limited (Paragon) concerned a complaint by Mrs Susan Plevin. She felt that she was not told that almost £4200 of the £5780 she had paid out on a PPI premium was actually commission paid to the lender (Paragon) and also to the broker who sold her the £34,000 loan that the PPI related to.
The court ruled in this case that the failure by Paragon and the broker to disclose to Mrs Plevin such a large commission payment on a single PPI policy made the relationship between Paragon and the borrower unfair under Section 140A of the Consumer Credit Act 1974.
Whilst there is a requirement for the lender and broker to disclose that commission has been paid, prior to this case, there was uncertainty in the law as to whether or not the actual amount of the commission paid had to be disclosed. Previous rulings in the Court of Appeal had declined to find a relationship was unfair due to failure to disclose the amount of commission paid. The judges in this case held that previous decisions on non-disclosure of commission were wrong. Lord Sumption stated:
“I turn therefore to the question whether the nondisclosure of the commissions payable out of Mrs Plevin’s PPI premium made her relationship with Paragon unfair. In my opinion, it did. A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness in any relationship between a creditor and a non-commercial debtor.”
“Mrs Plevin did not have to take PPI at all. Any reasonable person in her position who was told that more than two thirds of the premium was going to intermediaries, would be bound to question whether the insurance represented fair value for money, and whether it was a sensible transaction to enter into.”
This case also restated the requirement for the lender and broker to assess the suitability of PPI for its customers’ needs. The court re-iterated that the broker and lender must take reasonable steps to ensure that the recommendation for PPI is suitable for the customer’s demands and needs at the time the recommendation is made.
This case sets out that in certain circumstances lenders and brokers must disclose the amount of commission that has been paid under the PPI policy to the customer before the customer completes the loan and formally takes out the policy. Unfortunately, the court did not state what level of commission payments would be unfair, leaving each potential case to be decided upon its own facts.
The case also seemed to suggest that a lender will not be held liable for the dealings of completely separate and independent brokers and other intermediaries. Lenders will only be held liable for acts or omissions of their agent brokers.
It is now being reported that millions of customers could be owed compensation and this case could open the floodgates for a number of claimants. However, on a true reading of the case, it is clear that the amount of commission paid will only be one factor to be taken into consideration when assessing whether the relationship was unfair. It must also be remembered that the Supreme Court has sent the case back to Manchester County Court to determine what losses, if any, will be compensated by Paragon. This case remains ongoing.