What has just happened?
The PPI scandal has become the largest consumer redress scheme in British history, with an estimated £38 million paid out to consumers who were mis-sold the policy, with yet more to come. The deadline to file for compensation for PPI fell in August 2019. However, the case has not been put to rest as there is, in fact, another layer to the PPI scandal.[1] On top of the initial mis-selling of the product, which banks have been ordered to compensate buyers for, lenders took a huge commission from the insurance broker in some cases 95% of the original policy's cost, without telling the customer they were doing so.
What does this mean?
A supreme court ruling in 2014 set a precedent for PPI cases – the Plevin rule. It was related to Susan Plevin, who brought a PPI case where it was revealed that the lender, Paragon Personal Finance, made a 71% commission on the PPI policy. She was unaware of this commission when taking the policy and argued this was another form of PPI mis-selling. The court found in her favour. And with any commission over the 50% charge mark being considered 'unfair,' customers could only get back half the commission the bank was paid. But with the recent court rulings, judges have awarded far more, and experts believe millions of new complaints could be made as a result, including those who missed the original deadline. It could also apply regardless of whether the products were appropriate for customers or not. The frontrunners of charging excess commissions have turned out to be Lloyds Banking Group, the group including Halifax and Black Horse has already paid out £21.9bn in this mis-selling saga.[2] The group was further accused of wrongly rejecting 61,000 PPI claims after telling its customers they could not find any records of the accounts with PPI attached6, all those claimants and more will be given a chance to refile for returns.[3]
Customers may be entitled to claim if they'd previously been denied payments, received only partial refunds, never initially claimed a refund[4], and even people who are happy with their policy. All new PPI cases are based on how much commission customers were charged and unaware of. This means that even customers who were never mis-sold the policy or have already claimed could get a payout.[5]
How does it impact the legal sector?
Up to 64 million policies were sold, mostly between 1990 and 2010. It follows, there are millions of eligible cases on PPI claims yet to be filed. With court rulings in their favour, and a history of successful claims made, customers feel confident in filing for claims. Consumers need a professional and litigious steer to help them succeed in the pursuit of a claim, as the process of making a claim is often lengthy and complex. As such, this scandal ensures that revenue for litigations and claims management companies will generate tremendously. The CMA has further ordered all PPI providers to send customers annual reminders that set out how much they have paid for their policy, the type of cover they have, and reminds them of their right to cancel. This policy will ensure all consumers are fully aware of how much they are owed in this redress scheme.
The scandal has enabled tremendous growth for CMCs, which manages customer complaints in exchange for a cut of the compensation. Revenues for financial services specialists increased from £104billion in the 2009-10 financial year to £600 billion in 2017-18, according to the Ministry of Justice, which regulated CMCs until earlier this year.[6] Since then, the FCA had taken over, culminating in the number of financial service CMCs to decrease from 700 that were active when the switch was announced to 350 that have applied for authorization from the FCA. Amid stricter rules on how to interact with customers and harsher accountability for senior managers, PPI claimants will have to act faster and smarter in choosing a valued CMC firm.
Banks have grown desperate not to have to refund any more than the billions they already have. With the potential of more than 21 million claims on the horizon, leading names in the industry have hired top legal firms to represent them in the second wave of this scandal. Specialist law firms such as DLA Piper, Eversheds Sutherland, and Pinsent Masons, will have their work cut out for them in the coming months as PPI claimants come in drones. This indeed has turned into a financial circus of the 21st century with lawyers spectating.
Written by Akanksha Soni
Assessing Firms:
#AndrewandAndrewSolicitors #GladstoneBrooks #TheClaimsGuys #TheFairTradePractise #3DMLegal #ClearLaw #DLAPiper #EvershedsSutherland #PinsentMasons
References:
[1] Paloma Kubaik, ‘Second wave of PPI claims on the horizon’ (YourMoney.com, 10th August 2020)
[2] ‘Lloyds pays £2.5bn to deal with final PPI claims’ (BBC, 20th February 2020)
[3] Mike Birkett, ‘Lloyds wrongly rejected 61,000 PPI claims’ (Gladstone Brookes Ltd, 18th December 2020)
[4] Paloma Kubaik, ‘Second wave of PPI claims on the horizon’ (YourMoney.com, 10th August 2020)
[5] James Andrew, ‘Millions of people in line for new PPI payouts thanks to ruling on hidden fees’ (Mirror, 10th August 2020)
[6] Nicholas Megaw, ‘Claims management companies prepare for PPI comedown’ (The Financial Times, 15th September 2019)
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.