The Financial Conduct Authority might just live to regret using Arnold Schwarzenegger’s Terminator character to advertise the looming PPI claims deadline following a new ruling which means claims firms will soon be saying “We’ll be back” for another swathe of pay-outs which could run into tens of billions of pounds.
British banks have set aside huge sums to compensate those who were mis-sold PPI, which was designed to cover repayments if policyholders were made redundant, fell ill or died. So far they have shelled out nearly £30bn in compensation; Lloyds has paid £18.8bn for mis-selling claims, while Barclays has coughed up more than £9bn and RBS nearly £5bn.
The FCA set a deadline of August 29 2019 for claims and launched the Terminator campaign last year. However, a new case has opened the door to renewed claims as it suggests that even if the PPI policy was not mis-sold, the buyer may still be able to reclaim because the scale of the commissions paid were excessively high.
The case at Manchester County Court, involving a couple, Christopher and Joanne Doran, against Paragon Personal Finance, concerned the issue of commission paid.
Since October 2017, banks have been told to adopt FCA guidance that followed a court ruling known as “Plevin” when dealing with PPI claims. Under the Plevin rule, if more than 50% of a consumer’s PPI’s payments went as commission and this was not explained to them at the time, they could claim back payments above that threshold, plus interest.
The average commission banks were paid was 67%, meaning millions more people sold PPI were entitled to money back.
Following the Plevin ruling, claimants who had their original mis-selling claims turned down were able to go back to their loan provider and demand they be re-examined.
In the Doran case, the judge said the entire commission should be repaid plus interest – not only the commission above 50%, leading claims management firms to insist others will be entitled to new, higher payouts.
“This ruling is hugely significant and sets a new precedent,” said Simon Evans, chief executive of the Alliance of Claims Companies, which represents more than 50 claims firms.
Evans said that in total £50bn was paid by consumers to buy policies across the history of PPI selling. Once interest is added, the total figure is £80bn.
Paragon is considering its legal position. A spokesman said: “We believe this decision is at odds with other cases heard recently and does not create a precedent. The Doran case is one of a handful of legacy cases for Paragon and we are considering our position regarding appeal.”
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