The City watchdog today clarified rules on payment protection insurance (PPI) compensation which could lead to a new surge of massive bank payouts.
The Financial Conduct Authority (FCA) today issued a consultation paper saying that banks which failed to disclose big commissions at the point of sale and beyond of the policies may have acted “unfairly”.
The new guidance comes in response to the Supreme Courts March 2017 “Plevin” ruling, named after a customer who gained compensation for the entirety of a large commission paid to the bank.
The FCA explicitly warns that consumers who previously made a rejected PPI complaint “will be able to make a new complaint to their lender”, if it carries out its proposals. The consultation closes on 4 September, and will be followed by a policy statement in “late autumn”.
Banks will be forced to assess how they disclosed commissions “not only at the point of sale but on an ongoing basis”, the FCA said, widening the scope for complaints to cases where commission rates were raised after the initial sale.
The new rules will likely face heavy lobbying by the bank sector, who have already paid out or set aside £45.9bn for PPI redress schemes, according to think tank New City Agenda. A spokesperson for UK Finance, which represents the big banks, said it will be responding to the consultation.
John Cronin, a banks analyst at stockbroker Goodbody, noted that the proposal could lead to a “fresh wave of PPI complaints”, with Lloyds particularly at risk among the major high street lenders.
However, predictions of massive extra bills for banks may be off the mark, according to Dominic Lindley, New City Agenda's director of policy. He said: "The only way this ruling will lead to billions of pounds extra in payouts will be if thousands of consumers go to court and/or the FCA changes its guidance or FOS [the Financial Ombudsman Service] changes its policy."
The FCA guidance currently says that banks can retain commissions below 50 per cent. Meanwhile, new PPI complaints will be barred after a deadline of 29 August 2019.
Jonathan Davidson, executive director of supervision for retail and authorisations at the FCA, said: “This consultation provides guidance on how to ensure fair and consistent outcomes for regular premium PPI complaints.
“It supports our aim of bringing the PPI issue to an orderly conclusion in a way that secures appropriate protection for consumers and enhances the integrity of the UK financial system.”
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