The outcome of a recent court ruling in Manchester could create a fresh round of PPI claims, potentially worth billions of pounds.
Manchester County Court has ruled that a couple is entitled to compensation worth the full sales commission that they paid on their Payment Protection Insurance (PPI) policy, plus interest.
Totalling an award of £17,345, the case is being watched closely by many in the industry as the compensation represents the full 76% commission that the couple paid on their policy, which is significantly more than recommended in Financial Conduct Authority (FCA) guidance.
The FCA recommends that compensation should be awarded if the level of commission paid on a policy is ‘excessive,’ and exceeded 50% of the total cost of a PPI policy, stating that compensation should consist of the amount paid over 50% of the policy value.
Ruling that the couple, Christopher and Joanne Doran, should be awarded all of their sales commission plus interest, sets a new precedent, which according to the BBC, could mean that banks are liable for another £18m in payouts.
The Plevin Case and PPI commission
The original controversy swirling around PPI focused on mis-selling. Since 2014, however, there has also been a focus on the amount of excessive commission paid on the policies, following the landmark, Plevin Case.
Ruling that non-disclosure of commission rendered the credit relationship between the parties unfair, around 1.2 million complaints, out of the total of 13 million PPI pay-outs, have proved successful under this according to the BBC.
The outcome of the Doran case, however, marks a significant turning point, not only awarding a much larger payout but also suggesting that customers should have been regularly reminded of the amount of commission that they were paying throughout the duration of their policy.
“A castle built on sand,”
Elis Gomer, a commercial barrister at St John’s Buildings, said:
“Mrs Doran gave evidence that she would not have taken out the policy at all had she known about the commission level. Accordingly, the judge ruled she should be awarded the full amount of the premium in damages.
“This judgment – while not binding on other courts – is likely to have far-reaching significance, showing not only that the faulty FCA guidance is not legally binding, but also that it is a castle built on sand.
“If claimants challenge it, they could be repaid in full – at a potential total cost of up to £18bn to the banks,” she added.
What next for PPI claims?
Paragon Personal Finance, the firm that lost the Doran case, is reportedly considering an appeal against the ruling.
Meanwhile, according to the FCA’s deadline, all PPI claims must be lodged before the end of August next year.
This week the financial regulator launched a consultation that will decide whether consumers can claim compensation if they were initially told about the commission but not reminded about it throughout their policy.
Money Saving Expert notes that during this consultation period, customers can still submit commission based PPI complaints, ‘however, the response from firms is likely to be delayed until the new guidance is set, which won’t be implemented until at least Autumn this year.’