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Background:
The FCA confirmed the finalised deadline for making new payment protection insurance (PPI) complaints on the 2nd March 2017. The final deadline for making a new PPI complaint will be 29 August 2019. In the meantime, they will also run a two year consumer communication campaign which will be launched in August 2017.
The publication represents two years of industry interaction by the FCA to understand and create a package that is fair to the industry and consumers to draw a close to PPI claims.
Andrew Bailey, Chief Executive of the FCA said: “Putting in place a deadline and campaign will mean people who were potentially mis-sold PPI will be prompted to take action rather than put it off. We believe that two years is a reasonable time for consumers to decide whether they wish to make a complaint.”
The FCA has also made final rules related to how firms should handle complaints in light of Plevin v Paragon Personal finance. The court ruled that if a PPI seller did not disclose it had received a large commission from the product, the sale was unfair.
The approach includes a 50% commission ‘tipping point’ at which firms should presume the failure to disclose commission gave rise to an unfair relationship, and that profit share should be included in firms’ 50% tipping point calculations.
Key points from the policy statement
The policy statement completes the PPI consultation process that began with CP15 / 39 (November 2015) and continued in CP16 / 20 (August 2016). The FCA considered feedback and set out a definitive way forward, including the final rules and guidance:
- A new rule that sets a deadline by which consumers will need to make their PPI complaints or lose their right to have them assessed by firms or by the Financial Ombudsman Service. This rule will come into force on 29 August 2017, with the deadline falling on 29 August 2019
- An FCA-led communications campaign designed to inform consumers of the deadline, which will start when the deadline rule comes into force on 29 August 2017
- A new fee rule on 18 firms to fund this consumer communications campaign, which will come into force on 31 March 2017; with the first half of the fee collected one month later
The main changes the FCA has made relative to the proposals set out in CP16 / 20, are to:
- Require firms that sold PPI to write to previously rejected mis-selling complainants who are eligible to complain again in light of Plevin, in order to explain this to them
- Not apply the deadline to future complaints which concern a rejected claim on a live PPI policy, if the claim was rejected for reasons connected to the sale, such as ineligibility, exclusions or limitations
Feedback on the proposed rules and guidance on PPI complaints and Plevin
In light of the feedback from the previous FCA publications on the proposed rules and guidance on PPI complaints and Plevin, the FCA has modified its approach to include profit share, as well as commission because:
- Although profit share sums were usually not guaranteed, in practice, in many of the years when PPI was sold (including the years it was sold in greatest volume), claims rates were stable in the short to medium term. So it is reasonable to conclude that firms could reasonably foresee that they would receive material profit share sums under their agreements or arrangements with insurers
- Profit share sums were larger, relative to commission, than the FCA had estimated
- Disclosure of profit share would generally have been likely to impact the consumer’s thinking alongside any commission (or, in some cases, alone). So including it would run with the grain of Plevin and be fairer to the consumer
The FCA are not, however, intending to release standardised calculations for redress for firms, which is likely to add to the complexity and to the potential for disparity in redress calculations between firms.
Considerations for firms
The FCA will expect firms to start to put into action plans for the pro-active communications campaign, imminently (the FCA estimates that 1.2 million customers will need to be proactively contacted by firms where their complaint was not upheld but they may now be eligible for redress under Plevin/Profit share).
The FCA considers that identifying such previously rejected in scope complainants should be reasonably straightforward for larger firms who were both the PPI seller and CCA lender. Smaller firms that did both roles may find such review of scope somewhat more time consuming and costly.
The FCA will also provide more information on the advertising campaign in due course, and firms should be prepared about the volatility in complaints numbers which may now result as a result of the communications campaign, the release of ring-fenced complaints held by the Financial Ombudsman and the expected increase in Claims Management Company (CMC) activity.
The operational and capacity planning issues for firm (as well as population identification and redress calculation) are likely to be significant.
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