As the Financial Conduct Authority considers imposing a deadline for making PPI claims, we explore the possible scenarios facing financial organisations in what could be one last push before the most expensive issue to hit the UK Financial Services industry is finally put to bed.
The unprecedented scale of PPI
There is no doubt that Payment Protection Insurance (PPI) has been a huge issue for the UK Financial Services and it is worth reminding ourselves of the sheer scale of the scandal.
- Over 16 million PPI complaints have been made since 2007 with over £22bn of redress being paid to customers as a result.
- PPI continues to be the most complained about product referred to the Financial Ombudsman Service (FOS), with 43,982 new cases received in the final three months of 2015 and 67% of decisions being upheld in favour of consumers during the same period.
- Recent weeks have shown that financial results for a number of banks are still being impacted by PPI, with extra provision totalling billions of pounds being announced.
In November 2015 the FCA released Consultation Paper CP15/39 - Rules and Guidance on payment protection insurance complaints and a deadline of February 26 for firms to respond to the proposals was set. The final announcement following this consultation is still pending, but in preparation for an imminent announcement, firms should be aware of the consultations contents and be ready to take action when the new rules are announced.
The industry's reputation has taken a hammering as a result of this issue and financial services organisations have invested heavily in their complaint handling, remediation processes and customer service functions in order to repair the damage.
At the other end of the spectrum, there is a very real possibility that there might not be a noticeable impact on new complaint numbers. As the consultation paper states, firms have already proactively contacted around five million customers who may have been mis-sold PPI in the past and two thirds of British adults have received a phone call, text message, e-mail or letter from a CMC about PPI. Add in the number of TV and radio adverts relating to PPI and there is a strong argument that consumer awareness is already high. Let us also not forget that PPI is an insurance product, so there is a populus who knew what it was and opted for it to be included, so subsequently have not complained because they know they have no legitimate grounds to do so.
The Plevin Ruling
The consultation paper proposals on Plevin relate to specific types of complaints about the amount of commission earned from a PPI sale and whether non-disclosure of this amount to a customer resulted in an unfair relationship under section 140B of the Consumer Credit Act. The paper stresses that the guidance provides for some flexibility but suggests that when commission exceeded 50% then failure to disclose this to customers did give rise to an unfair relationship.
The paper proposes that appropriate redress would have three elements: 1) the difference between what the customer paid and 50%, 2) the historic interest the customer paid on that amount and 3) annual simple interest at 8% on the sum of 1) and 2). However, it also states that firms should consider whether a different form of redress is required to remedy the unfair relationship. Whether any firms would choose to move away from the three-stage approach outlined in the paper is questionable, but this wording does provide an opportunity for firms to be innovative and consider other options.
It is a positive for firms that the paper states there will not be an expectation on them to proactively review past sales or previously rejected complaints linked to the scenarios raised in Plevin. However, the fact that it is called out as a specific subject will raise the awareness of this type of complaint and could result in an increase in volume. Firms should be able to assess whether commissions for past sales exceeded 50% and ensure they can calculate redress effectively for such cases.
What to plan for?
Given these unknowns, scenario planning should be something firms are considering and the availability of a flexible and knowledgeable workforce is key. Firms should be ready to move quickly if the PPI volumes do start to increase, but may not wish to recruit and train large numbers of staff for something that might not come to fruition. In this situation, contingency plans should be in place to maintain operational readiness, preparing for the future and also protecting service levels on other work streams from being impacted by PPI.