Britain’s high street banks are battening down the hatches as they wait for regulators to decide how hard the Plevin case on PPI mis-selling is going to hit them.
Top financial journalist Katherine Griffiths, of The Times, says that lenders may have to find another £50 million in compensation on top of the £26 million + they have already set aside to pay out successful claims.
“The numbers being whispered about are astronomical,” says The Times banking editor. “Some say that lenders will have to find £50 billion ……. Others suggest an Armageddon scenario that propels the tally to £100 billion.”
The thing that has the banks really worried is not just how much they will have to pay in extra PPI compensation. They fear that the Financial Conduct Authority (FCA) could say the landmark Supreme Court case can apply to any financial product involving sales commission, like store cards and car finance.
In last November’s decision, the Supreme Court ruled that if a PPI seller failed to disclose that it had received a large commission from the policy provider, the sale was unfair under the 1974 Consumer Credit Act and the policy had therefore been mis-sold.
College lecturer Susan Plevin had borrowed £34,000 from the broker Paragon Personal Finance. She was told that a commission had been paid, but not how much. In fact, 72% of the £5,780 premium she paid was commission and only 28% went to pay for her policy.
The FCA are currently considering the case as part of their thematic review into the way in which PPI claims have been handled by British lenders. Investigations last year led them to order the banks to re-open 2.5 million former cases where they believed the claim had either been unfairly rejected or the consumer had not been paid the full amount of compensation they were due.
The regulator also fined Lloyds Banking Group (LBG) a record £117 million fine for mishandling PPI complaints between March 2012 and May 2013. Clydesdale/Yorkshire were also hit with a £20.7 million fine for ‘serious failings’ in their PPI operation, including falsifying records and misleading the Financial Ombudsman Service (FOS).
Ms Griffiths says the Plevin decision is a tough call for the FCA, with one possible option being to pass the buck to the courts for them to decide how to interpret Plevin. But she believes the regulator ‘will try to come up with a plan that won’t bankrupt the industry.’
She claims: “Possible schemes are being tested by individual banks which would see them stick to PPI – going through past cases which were viewed as robust but may now attract compensation because of the presence of a significant commission payment.”
The banks are also anxiously awaiting an FCA decision on a possible deadline for future PPI claims.
The possibility of a deadline being imposed is part of the PPI thematic review and is something the banks have been pushing for since they lost the High Court judicial review in 2011.
The Financial Services Authority (FSA) – the predecessor of the FCA – rejected the idea in 2013 after protests from consumer groups, but the banks have asked for it to be put back on the agenda in an attempt to draw a line under what has become one of the biggest financial scandals the UK has ever seen.
“The banks are also anxiously awaiting an FCA decision on a possible deadline for future PPI claims.”