Financial Conduct Authority
CP16/20***
Consultation Paper
August 2016
Rules and guidance on payment
protection insurance complaints:
feedback on CP15/39 and further
consultation
Financial Conduct Authority 1
August 2016
CP16/20***
Rules and guidance on payment protection insurance complaints:
feedback on CP15/39 and further consultation
Contents
Abbreviations used in this paper 3
1 Overview 5
2 PPI trends and the rationale for the
proposed deadline and consumer
communications campaign 9
3 The details of the proposed deadline and
consumer communications campaign 24
4 The proposed fee rule to pay for the
proposed consumer communications campaign 54
5 The proposed rules and guidance on
PPIcomplaints and Plevin 59
6 Next steps 114
Annex
1 Further consultation questions 117
2 List of non-confidential respondents 118
3 Equality impact assessment 120
4 Cost benefit analysis 134
5 Compatibility statement 143
Appendix
1 Revised draft Handbook text
(legal instrument) 151
2 Financial Conduct Authority
August 2016
CP16/20***
Rules and guidance on payment protection insurance complaints:
feedback on CP15/39 and further consultation
In this paper we give feedback on the responses to CP15/39 Rules and Guidance on payment
protection insurance complaints, and further consult on an amended set of proposals.
You can send them to us using the form on our website at:
www.the-fca.org.uk/cp16-20-response-form.
Please send any comments or enquiries by 11 October 2016 to:
Julian Watts
Specialist Supervision Division
Financial Conduct Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Email: cp16-20@fca.org.uk
We make all responses to formal consultation available for public inspection unless the respondent
requests otherwise. We will not regard a standard confidentiality statement in an email message as a
request for non-disclosure.
Despite this, we may be asked to disclose a confidential response under the Freedom of Information
Act 2000. We may consult you if we receive such a request. Any decision we make not to disclose the
response is reviewable by the Information Commissioner and the Information Rights Tribunal.
All our publications are available to download from www.fca.org.uk. If you would like to receive this
paper in an alternative format, please call 020 706 60790 or email publications_graphics @fca.org.uk or
write to Editorial and Digital Department, Financial Conduct Authority, 25 The North Colonnade, Canary
Wharf, London E14 5HS
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Rules and guidance on payment protection insurance complaints:
feedback on CP15/39 and further consultation
Abbreviations used in this paper
BBA British Bankers’ Association
CBA cost benefit analysis
CCA Consumer Credit Act 1974
CC Competition Commission
CCA Consumer Credit Act 1974
CMC claims management company
CMR Claims Management Regulator
DSAR data subject access request
DISP Dispute resolution: Complaints sourcebook
EIA equality impact assessment
FCA Financial Conduct Authority
FEES Fees manual
FSA
Financial Services Authority (the regulatory body preceding the FCA and Prudential
Regulatory Authority)
FSCS Financial Services Compensation Scheme
FSMA Financial Services and Markets Act 2000
GCL Goss Consultancy Ltd
ICO Information Commissioner’s Office
ICOB Insurance: Conduct of Business sourcebook
ICOBS Insurance: New Conduct of Business sourcebook
IPT insurance premium tax
OJEU Official Journal of the European Union
Plevin Supreme Court judgment in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61
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feedback on CP15/39 and further consultation
PPI payment protection insurance
Principles FCA’s Principles for Businesses
RPPPI regular premium PPI
s.140A section 140A of the CCA, which came into force in 2007
s.140B section 140B of the CCA, which came into force in 2007
s.140C section 140C of the CCA, which came into force in 2007
s.404 section 404 of FSMA, which, as revised, came into force in 2010
SPPPI single premium PPI
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1.
Overview
Introduction
1.1 In CP15/39 (November 2015),
1
we proposed:
• a new rule that would set a deadline by which consumers would need to make their
payment protection insurance (PPI) complaints or lose their right to have them assessed by
rms or by the Financial Ombudsman Service
• an FCA-led communications campaign designed to inform consumers of the deadline
• a new fee rule on 18 rms to fund this consumer communications campaign
• new rules and guidance on the handling of PPI complaints in light of the Supreme Court’s
decision in Plevin v Paragon Personal Finance Ltd
2
(Plevin)
1.2 We asked for feedback on these proposals by 26February 2016. We received 71responses,
many of them detailed, from firms, trade bodies, consumer organisations, claims management
companies (CMCs) and individuals.
High level summary of feedback and our response
1.3 On the proposed deadline, consumer communications campaign and fee rule:
• most responses from industry broadly supported our proposals, though some raised
concerns about some aspects
• most responses from consumer bodies and CMCs did not agree there should be such a
deadline, and expressed doubts about the effectiveness of the campaign
1.4 On our proposed rules and guidance on PPI complaints and Plevin:
• most responses from industry broadly supported our proposals, though some raised
concerns about some aspects, particularly the inclusion of regular premium PPI
1 https://www.fca.org.uk/your-fca/documents/consultation-papers/cp1539-payment-protection-insurance-complaints-rules-and-
guidance This followed our earlier announcements in January 2015, when we said we would gather evidence and assess whether
the current approach to redressing PPI mis-selling was continuing to meet our objectives or whether further interventions by us were
needed: The Financial Conduct Authority to gather evidence on how the PPI complaints process is working, and in May 2015, when
we said we would also consider the implications for PPI complaint handling of the Supreme Court judgment in Plevin: Statement on
Plevin v Paragon Personal Finance Ltd.
2 The Supreme Court issued its decision in November 2014. It ruled that the failure by the lender to disclose to Mrs Plevin the large
commissions payable out of her PPI premium made its relationship with her unfair under section 140A of the Consumer Credit Act
1974 (s.140A).
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• most responses from consumer bodies and CMCs agreed with our rationale for intervening
but disagreed with the key elements of our proposed approach
1.5 We have carefully considered all this feedback and also factored in:
• our further preparatory work on the proposed consumer communications campaign which
we explained in CP15/39 we would undertake
• the results of our further work on identifying and mitigating the potential impact of our
proposals on consumers with protected characteristics
3
or who are vulnerable
• our discussions with rms and consumer organisations about specic potential improvements
in PPI complaint-related customer service before the launch of any campaign
1.6 Following our consideration, we still consider that our proposed package of measures would
help bring finality and certainty to the PPI issue in a way that advances our operational
objectives of securing an appropriate degree of protection for consumers and of protecting
and enhancing the integrity of the UK financial system. This includes reducing uncertainty
about how firms should handle relevant PPI complaints in light of Plevin.
1.7 However, we do propose some specific changes to the rules and guidance on PPI complaint
handling and Plevin. The main changes are to:
• now include prot share sums
4
in our approach, as well as commission
• clarify how our approach should work where commission, and now prot share rates, vary
during the life of the PPI policy
• now say that sums rebated to a consumer when they cancelled a single premium PPI policy
early can be partly included in, and so reduce, any redress due
1.8 In our view, these changes and clarifications would:
• lead to signicantly more redress being paid by rms, relative to our original proposals, for
complaints concerning undisclosed commission
• not increase total PPI redress to the same degree, as most complaints will still concern mis-
selling and be redressed on that basis under our existing rules
• not alter the conclusion of the cost benet analysis we set out in CP15/39
1.9 We are also making other smaller amendments to the proposed rules and guidance. These
are primarily minor consequential changes or changes for clarity or Handbook simplification
purposes and not all are specifically discussed below. Readers are therefore encouraged to read
carefully the revised proposed rules and guidance at Appendix 1.
1.10 Given the importance of the issues raised in our original and amended package of proposals,
we have decided to consult further, for 10weeks, on the whole amended package. This will
allow us to further test and debate our proposed approach.
3 As defined in the Equality Act 2010.
4 Arrangements (often including contractual entitlements) that firms typically have to receive back most or all of any PPI premium
money which had initially gone to the insurer, for example to cover potential claims on policies, but which remained unspent after a
fixed period, for example because actual claims did not exceed certain levels.
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1.11 Accordingly, we ask specific consultation questions on the changes proposed above, but also
invite further comments on the whole package of measures. In particular, we ask at the end
of this publication:
Do you consider that, taken as a whole, our proposed
package of measures – the proposed deadline rule,
proposed consumer communication campaign,
proposed fee rule, and proposed rules and guidance
(as amended) concerning PPI complaint handling and
Plevin – is a justied, appropriate and proportionate
response to past PPI mis-selling and present trends in PPI
complaints handling?
1.12 We ask for comments on the new aspects of our proposals, and for new comments on the
aspects that are not new. We are not seeking repetitions of the previous comments reported
on here. However, we would ask respondents to indicate the extent, if any, to which they
maintain their previous comments to us. We have not yet completed our deliberations and will
consider all views.
Purpose of this feedback statement and further consultation
1.13 In this paper we:
• outline the feedback we received on our proposals in CP15/39
• provide our responses to that feedback
• highlight areas where we have amended our proposals because of feedback
• set out revised proposed rules and guidance reecting those amendments
• invite further comments on our revised proposed package as a whole
• outline what happens next
Who should read this document?
1.14 This feedback statement and further consultation affects:
• consumers who were – or may have been – sold PPI
• CMCs, other paid advocates, and consumer organisations who take forward complaints
about PPI on behalf of consumers or otherwise help them
• rms that sold PPI and/or provided credit agreements which PPI covered
• anyone interested in the FCA’s performance and accountability
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What happens next?
1.15 Please comment on the proposed package of measures, as amended, by 11 October 2016.
1.16 We will then consider the further feedback we receive before completing our deliberations and
deciding whether or not to proceed with our proposals. See Chapter 6 for a potential timeline
if we do decide to proceed.
1.17 Consumers who are unhappy about PPI should continue to complain to the firms concerned.
They should also continue to complain to the Financial Ombudsman Service if they are not
satisfied with firms’ responses to their complaints. Consumers who intend to complain about
PPI should do so as soon as possible. Making such complaints is free to consumers, unless they
choose to use a CMC or other paid advocate.
1.18 We will continue to monitor and challenge firms to ensure that they deal fairly and promptly
with PPI complaints, including cooperating with the Financial Ombudsman Service. We will take
action where firms fail to act fairly.
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2.
PPI trends and the rationale for the
proposeddeadline and consumer
communications campaign
Introduction
2.1 In Chapter 2 of CP15/39 we set out in detail the evidence about the PPI landscape and trends
which we had considered, our assessment of whether the current approach was continuing to
meet our objectives and whether we needed to intervene further.
2.2 We concluded that there was a case for intervening and proposed:
• a two year deadline for complaining about PPI
5
: consumers would need to complain to a
rm on or before the deadline or else lose their right to have their complaint assessed by
the rm or by the Financial Ombudsman Service
6
• an FCA-led high prole consumer communications campaign with appropriate messaging
before the deadline
2.3 We considered that, together, these measures:
• would prompt many consumers who want to complain, or to check whether they had PPI,
but have not yet done so, into action, resulting in them potentially getting redress sooner
• may encourage more consumers to complain directly to rms, rather than through CMCs
or other paid advocates
• may increase the efciency of PPI complaints handling, benetting consumers and rms
• would bring the PPI issue to an orderly conclusion, reducing uncertainty for rms about
their long-term PPI liabilities and helping rebuild public trust in the retail nancial sector
• overall, would help bring nality and certainty in a way that advances our operational
objectives of securing an appropriate degree of protection for consumers and of protecting
and enhancing the integrity of the UK nancial system
2.4 We asked:
Q1: Do you agree with our assessment of the PPI landscape
and trends, and that we should now seek to draw the PPI
issue to an orderly close through the proposed deadline
and proposed consumer communications campaign?
2.5 This chapter summarises the main feedback we received and provides our responses.
5 That is, we proposed that the deadline would fall two years after the start date of the proposed rule.
6 See chapter 3 below for more detail on the proposed nature, effect and scope of the proposed deadline rule.
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feedback on CP15/39 and further consultation
Feedback received and our responses
2.6 Most responses from industry agreed that we should set a deadline for complaining about PPI
and lead a consumer communications campaign. Many of these responses echoed reasons we
had given in support of this intervention, including its:
• being in the best interests of customers, because it would prompt them into action and
result in redress being paid to many of them sooner
• potentially increasing the efciency of PPI complaints handling, by limiting the further
widening of the time gap between complaints and point of sale evidence
• being in the best interests of rebuilding public trust in, and maintaining the integrity of, the
UK nancial system
• providing a set timescale for dealing with the PPI issue which could potentially encourage the
development of new and transparent protection products, and reduce consumers’ current
reluctance to engage with such products and the risk of them not being protected, and
• consumers becoming increasingly tired with the level of contact from CMCs, potentially
resulting in inaction about the PPI issue
2.7 Some responses from industry, while broadly agreeing in principle with our proposed
intervention, expressed concerns about its potential impact on some firms because:
• while bringing long term certainty, we had not assessed the increase in PPI complaints
volumes it would prompt, and the operational, cash-ow and capital markets uncertainty
this would cause small and medium rms
• these impacts create a serious risk that some smaller rms, particularly in the nancing,
running-account and restricted-use credit sectors, will become nancially unviable, which
would be inconsistent with the FCA’s integrity objective and lead to claims on the Financial
Services Compensation Scheme (FSCS)
Our response
As we explained in CP15/39, we considered that no amount of data or effort
could give us reasonably precise and meaningful numbers on the future path
of PPI complaints if we did not intervene. As a result, we could not construct a
meaningful benchmark against which to quantify the effects of our proposed
package of interventions. So we could not reasonably estimate the aggregate
costs and benets owing from the change in the level of complaints and redress.
For the same reasons, we cannot estimate what the likely increase in complaint
volumes or costs may be for specic sectors, types of rms or individual rms,
and so cannot repeat the kind of assessment the Financial Services Authority
(FSA) gave in CP10/6
7
and PS10/12
8
of the particular nancial and potential
prudential impact of our original PPI rules on, for example, general insurance
intermediaries and secured lenders.
7 Consultation Paper 10/6 (March 2010) www.fsa.gov.uk/pubs/cp/cp10_06.pdf
8 Policy Statement 10/12 (August 2010) www.fsa.gov.uk/pubs/policy/ps10_12.pdf
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Generally, our view is that the additional PPI redress payments we would
expect following our intervention would create a cost to rms and a benet
to consumers, and we consider this reasonable in the circumstances. However,
we recognise that complaint volumes in the period before the deadline date
could potentially create operational and even nancial pressures for some rms.
However, as noted, we cannot reasonably estimate what these would be or
identify in advance which rms might be affected by this.
If firms find themselves in difficulty, they can discuss with us potential methods
within the regulatory framework to manage these pressures and avoid
detriment to consumers or disproportionate consequences for firms or the
FSCS. For example, our existing rules on complaint handling already provide
firms with flexibility around the usual time limits for handling complaints if there
is a good reason for delay.
9
We stand ready to work closely with firms that need
to use this flexibility, including by providing individual guidance if appropriate.
We have already been working with them to understand the implications for
them of our proposed campaign and the information requests and complaints
it may prompt.
2.8 Some responses from industry said that:
• we had given insufcient thought to the impact on rms of the increased volume of
speculative complaints, including cases where it turns out the complainant was never sold
PPI in the rst place, and data subject access requests (DSARs), which our intervention
would prompt, especially from CMCs
• this would especially impact rms who had sold little or no PPI but who already receive high
volumes of speculative complaints and DSARs, and who will get even more in the short
term, without sharing in most of the long term benets of our intervention
• we should act more robustly on CMC behaviour to reduce such unnecessary burdens and
costs on rms
Our response
It is true that many PPI complaints are framed simply, often on the basis of
example complaint letters available on the internet. However, the fact that
some of these complaints are not upheld does not mean they are ‘speculative’
or ‘fraudulent’ or otherwise unreasonable, especially given the widespread
weaknesses in selling practices which the FSA previously identied and set out.
We recognise that there is a signicant proportion of cases where the
complainant turns out never to have been sold PPI in the rst place (‘no PPI’
cases), and also a growing number of DSARs. We accept that our intervention
may intensify these trends in the short term, though we would take steps to try
to limit that effect (see chapter 3 below). However, it will also be important that
rms deal accurately and pragmatically with these issues at all times, including
by giving:
9 See DISP 1.6.2R(2) in particular.
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• accurate rst time assessments, without intervention by the Financial
Ombudsman Service, of whether a consumer has been sold PPI or not, which
would increase condence, including among CMCs, in rms’ processes
and encourage them to make enquiries of the rm before submitting
any complaint
• accurate rst time responses to informal enquiries about whether a consumer
has been sold PPI, which would increase condence, including among
CMCs, in rms’ processes and encourage them not to make formal DSARs
We do not regulate CMCs yet
10
and so cannot currently intervene to make
rules and guidance for them and their involvement in PPI complaints.
However, we have discussions with the Financial Ombudsman Service, the
Claims Management Regulator (CMR) and CMC trade bodies concerning PPI
complaints, CMC conduct and CMCs’ experiences with firms, and would
continue to do so following any intervention. If firms suffer from particularly
high proportions of ‘no PPI’ complaints or speculative DSARs, we would work
closely with these bodies to try to reduce these cases, which are fruitless for the
CMCs and complainants themselves.
2.9 Some responses from industry agreed that there should be a deadline but said there should not
be an FCA-led consumer communications campaign because:
• PPI mis-selling has had a high public prole for a long time and consumer awareness is
already high, as our own research (in CP15/39) shows, so the probability of any customer
being unaware of the issue is remote.
• The main barriers to complaining are lack of time and energy, as our own research showed,
so it is not clear how an advertising campaign would help.
• The proposed campaign would primarily benet CMCs’ advertising and business, to the
cost of those customers who then choose to use them.
• Many rms already have efcient operations and those that do not would nd it hard to
increase resources to handle the volumes of complaints the campaign would prompt.
• Our proposal indiscriminately places burdens on rms who have already made considerable
effort to undertake past business reviews and pay redress. So we should use more targeted
supervisory tools to directly tackle only those rms that have not properly addressed the PPI
mis-selling issue.
10 The Chancellor announced in March that regulation of CMCs would be transferring from the Claims Management Regulator to
theFCA.
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Our response
We do not agree that it would be fair to impose a deadline on consumers’
right to complain about PPI without conducting an extensive communications
campaign to warn them of that deadline before it passes and prompt them to
check whether they had PPI, or complain, before it.
While the PPI issue has had a high prole for several years and general
awareness among the public may be high, our research showed that awareness
is still far from universal, and real understanding of the issue and its potential
personal relevance is even less widespread. So we do not think the proposed
communications campaign would be superuous or disproportionate.
Although consumers often refer to lack of time and energy as an obstacle, our
research showed that communicating a deadline would prompt action among
many consumers. It also showed that a campaign would help address people’s
mis-perceptions that complaining is difcult and time consuming and reduce
barriers to checking and complaining.
We accept that the proposed deadline and campaign might well lead to a
growth in the absolute numbers of complaints made via CMCs in the period
before the deadline. But many of those consumers will still receive redress
through these complaints, albeit less than if they complained directly, so they
will still benet from our intervention. However, our communications will
continue to make clear our longstanding view that most consumers do not
need a CMC to complain effectively about PPI and we will provide information
to help consumers complain themselves.
We consider there would be some longer term efciencies from our intervention.
For example, the deadline would limit the scope for future PPI complaints to
be made longer and longer after the sales they concern with the associated
difculties in gathering and checking evidence. We do, however, accept that
before the deadline falls, operational difculties for some rms may arise from
potential increased complaint volumes. We discussed this aspect above and
how we might respond to rms who nd themselves in such difculties.
It is true that many firms have already received large numbers of PPI complaints,
including those prompted by their own consumer contact exercises. However,
we do not consider that this undermines the rationale for a campaign to
accompany the deadline, or means that the campaign and its effects would
be unduly burdensome for these firms. As we noted in CP15/39, a majority of
the PPI policies sold have not been complained about or contacted in firms’
past business review exercises (which have mainly concerned sales made
after January 2005). So the deadline and campaign will still be relevant and
beneficial to the majority of most firms’ past PPI sales and customers. Targeted
supervisory action now against only some firms would not achieve our wider
aim of bringing certainty and an orderly conclusion to the PPI issue.
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2.10 Some responses from consumer bodies and CMCs also broadly supported our proposed
deadline and consumer communications campaign. They felt that:
• Signicant numbers of PPI consumers remain in a position to seek redress for potential mis-
selling but have not done so despite more than 6years of high prole coverage.
• The declining level of complaints since 2012 shows that consumer engagement with the PPI
issue was highest in the early years of our complaints-led approach to redress. Subsequent
media attention and CMC marketing created fatigue, with ‘more of the same’ messaging
having a diminishing effect.
• The current situation, with little impetus for consumers to complain but nancial institutions
keeping large, uncertain liabilities, is the ‘worst of both worlds’.
• There was no better way to resolve this and ensure that consumers engage with the process
of complaining about mis-sold PPI than setting a deadline and coordinating a large scale
communications campaign.
2.11 However, these generally supportive responses also said that:
• the concept of a complaints deadline and a media-based campaign should be seen as a
specic response to the special circumstances of PPI and not as setting any precedent for
other mis-selling or misconduct issues
• the deadline may well prompt a surge in cold calls from CMCs, which will:
–
have a detrimental effect on the public generally who are already tired of receiving
unsolicited marketing approaches
–
cause vulnerable consumers who are less able to resist such marketing to sign up with
CMCs and pay them signicant charges for making often straightforward complaints
• the deadline’s introduction should be aligned with the introduction of the CMR’s proposed
cap on the level of CMC fees
Our response
We proposed the deadline and consumer communication campaign only after
careful assessment of the PPI issue and trends in complaints and redress. Our
proposed intervention is designed in the specic context of the PPI issue. We do
not consider that it would set any precedent for how we might approach other
misconduct issues or redress exercises in the future. We would consider those
issues, and our potential interventions in them, on their own merits at the time,
in light of their specic details and our regulatory objectives and priorities.
Whilst we agree that the proposed deadline would probably prompt increased
activity by CMCs in the short term, including cold calling, we do not see this as
a reason not to proceed with the deadline. Rather, it is something that we will
take account of as part of the campaign, for example, by providing information
on how people can check or complain directly.
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We discuss the position of vulnerable consumers in detail in Chapter 3, including
how the design of our campaign and our partnership work would specically
reach them and support their potential checking and complaining. However,
we accept that some vulnerable consumers, for example those with especially
complex nancial affairs or limited nancial literacy, may be more likely than
other consumers to benet from using CMCs’ services. Clearly, however, both
the CMR now, and we in the future, would expect CMCs to treat vulnerable
consumers fairly.
We are aware of the CMR’s proposed cap on CMC fees, which is currently
being consulted on, and continue to liaise closely with the CMR on its thinking.
Such cap may be in force during the period before our proposed deadline falls.
However, we do not propose to delay or halt our proposed interventions in the
event that the fee cap is delayed or not pursued.
2.12 Most responses from CMCs and consumer bodies strongly disagreed with our proposed
deadline and campaign, on various grounds which we consider in turn below.
The proposed intervention is premature, inadequate and inefcient
2.13 Some responses from CMCs and consumer bodies said our proposed intervention was:
• premature, as it is based on the incorrect assumption that PPI redress is near completion
when in fact the PPI redressed so far is a minority of what was sold
• inadequate, as it merely continues the inadequacies and inefciencies of the existing
complaints-led approach which:
–
has delivered only limited redress so far
–
has included only belated and limited contact exercises by rms, with poorly designed
letters prompting only one third of recipients to complain in response
–
has had the costly side effect of creating a substantial and active CMC sector that has
diverted large sums of redress from consumers
–
is mainly untargeted, and so more inefcient and costly for rms and consumers than
alternative proactive targeted approaches we could use (including under s.404 of the
Financial Services and Markets Act 2000 (FSMA))
Our response
We do not agree that, because the majority of PPI policies have not been
complained about, the proposed deadline is premature or that continuing the
complaints-led approach through our proposed campaign is inadequate. This
feedback rests on a view of all PPI policies as awed, of all sales as mis-sales,
of the redress process as a kind of product recall, and of anything less than all
PPI consumers receiving redress as a failure of our approach. We do not share
this view or consider it accurate. The PPI market was large, long-established
and diverse in its products and their benets and limitations, costs and value
for money, and the channels and ways in which it was sold. Amid this diversity,
we remain of the view that not all PPI was mis-sold and that, properly sold,
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PPI could meet some consumers’ genuine credit protection needs. Also, as our
existing rules and guidance (at DISP App 3) make clear, not all failings in sales
processes or practice made sales substantially awed, and even substantially
awed sales did not always mean that there had been consumer detriment, as
in some cases the consumer would likely have bought the PPI in any case and
has not suffered detriment.
Therefore, we remain of the view that, in the circumstances, it was fair and
proportionate for us to pursue an approach that mainly relies on consumers
who are dissatised with their PPI policy identifying themselves to rms through
complaints. As we set out in CP15/39, complaints made by consumers, including
in response to the large-scale mailings to high risk consumers by rms, have led
to substantial sums of redress to millions of mis-sold consumers. We remain of
the view that overall it has provided a fair and effective solution to redressing
PPI mis-selling. We note that our research, cited in CP15/39, showed that in our
20,000 consumer sample, nearly half (47%) of those consumers who said they
have or had PPI (4385), had complained.
We do not agree that rms’ proactive contact exercises, once carried out, have
been limited in scope or ineffectual. Firms have written targeted letters to
5.5m consumers identied as being at high risk of mis-sale, a third of whom
complained in response. These response rates are in line with previous major
mailing exercises. We have no reason to think that those who received these
letters but have not complained feel they were mis-sold.
We acknowledged in CP15/39 the signicant growth of the CMC sector and
share of redress it has taken, and the costs rms have incurred in handling ‘no
PPI’ complaints. We have given careful thought to the lessons to be learned
from both PPI and other redress exercises. We have used a variety of approaches
in recent times and continue to develop our thinking about how to design and
operate approaches to redress that are fair and effective for consumers, and
proportionate and efcient for rms.
Overall, therefore, we do not consider that there are strong grounds to
significantly depart from this complaints-led approach now, in the period before
the proposed deadline, or that it would be proportionate to do so.
The proposed intervention is not justied, beneting rms and harmingconsumers
2.14 Some responses from consumer bodies and CMCs said that:
• our proposed intervention was unjust and undermines consumer protection, as it strips
consumers of their right to complain in the UK’s largest mis-selling scandal, to their
clear detriment
• we had not provided any convincing evidence or proper basis for our conclusion that it
would benet affected consumers who have yet to complain or the wider market, and had
merely assumed this
• a deadline will instead simply lead to a lower long term level of complaints and redress, to
the great benet of rms but unfairly harming consumers, in particular the vulnerable and
heavily indebted
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2.15 These responses also criticised in detail the specific evidence we had put forward in support of
our proposed intervention, saying variously that we had:
• unfairly framed the gradual decline in complaint volumes as a problematic ‘long tail’ that is
bad for consumers and the market, whereas it is entirely natural – consumers should remain
able to complain whenever best suits them
• given too much weight to our view that the perceived open-ended nature of the current
complaints-led approach contributes to consumer inertia and can be corrected by a
deadline, as:
–
consumers’ actual behaviour is likely to be different from, and less responsive to a
deadline than their stated intentions in the survey
–
the research methodology under-represents the nancially vulnerable and
unsophisticated, due to sampling bias through self-selection and online survey
techniques, which National Readership Survey (NRS) data weighting does not
adequately mitigate
• given too much weight to drawing an end to cold calls from CMCs, as this is a separate issue
that should be addressed in a targeted and proportionate way by the relevant regulator, not
by the blunt instrument of a deadline
• given too much unsupported credence to rms’ allegations that consumers delay their
complaints to accrue more years of 8% interest
• ignored the likelihood that our intervention would lead rms to handle complaints less fairly
and efciently, due to overstrained capacity, or deliberately so as to reduce redress
• failed to acknowledge that a deadline would fail to bring an orderly resolution, as it will
simply lead to more actions in the courts, creating a burden on that system, more costs for
rms, and more dependency of consumers on CMCs
• presented little or no evidence that our intervention will:
–
improve public trust in the integrity of retail nancial services or otherwise promote
market condence
–
stimulate corporate restructuring or the supply and demand of improved debt
protection products
Our response
A prolonged decline of PPI complaint volumes may be natural, but this does
not necessarily mean it is helpful for consumers or advances our objectives. We
remain of the view that it creates the potential disadvantages to consumers and
rms that we highlighted in CP15/39.
We undertook large scale quantitative research with over 20,000 consumers
to gather information about PPI. For the quantitative survey the sample data
was weighted to the prole of all UK adults aged 18 or over (including non-
telephone owning households) by gender, age, socio-economic grade and
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region. The quota was based on the NRS 2013 and this is set out in the ComRes
Technical Report published alongside CP15/39. We consider that the data
gathered provides a robust source to inform our decision making on whether
to intervene further on PPI.
We also undertook large scale qualitative research with 286 consumers via
focus groups and face to face interviews to obtain more detailed insights on the
barriers facing consumers who may hold PPI, which has also heavily inuenced
our rationale for the communications campaign.
Our view is that the research carried out is of appropriate size and level of detail
to properly inform our decision. We discuss the particular position of more
vulnerable consumers in detail in Chapter 3, in the context of feedback on the
details of our proposed communications campaign.
Whether some consumers are irritated by CMC cold calls, or incur costs by
answering them, is not a factor to which we give weight in our assessment in
CP15/39, as these aspects are not a threat to our current objectives. Rather,
our concern was how such contact potentially contributes to putting some
consumers off making a complaint and how our proposed communications
campaign could cut through and overcome such effects and prompt consumers
who intend to act to do so promptly.
We clearly said that we had not seen evidence of consumers deliberately putting
off complaining about PPI in order to gain further years of 8% interest on their
potential redress.
As we acknowledged above, our proposed intervention could increase PPI
complaint volumes and strain some rms’ handling capacities. We explained
how we would seek to reduce the risks of such strain, or mitigate them if
they crystalise. We would also put in place a robust strategy of supervisory
monitoring and challenge in the period before the deadline (see Chapter 3) and
take action if rms fail to handle complaints fairly.
We agree that it would remain open to consumers to take claims about PPI
mis-selling to the courts after our proposed deadline. However, we anticipate
that our proposed communications campaign, if planned and implemented
successfully, would prompt many consumers to use the free complaints
handling framework and alternative dispute resolution mechanism of the
Financial Ombudsman Service before the deadline, and so limit the likely future
ow of PPI cases to the courts.
We were careful in CP15/39 not to overstate points or go beyond what the
evidence would support. We remain of the view that it is reasonable for us
to see:
• condence and certainty as key to ensuring markets work well
• the potential long tail of PPI complaints as creating uncertainty that
overhangs rms’ planning and negatively affects condence
• our proposed intervention as bringing an orderly conclusion to the PPI
issue that would reduce uncertainty and help promote market condence,
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including, given the rms mainly concerned are multi-product rms at the
heart of most retail nancial markets, public trust in the integrity of the retail
nancial sector.
We said only that the nality and certainty of closure may also indirectly support
other potential benets by assisting consumers to reacquire appetite for any
improved, fairly priced and sold PPI or post-PPI debt protection products,
or by stimulating innovation and the supply of these products or corporate
restructuring in the retail banking sector (their main likely distributor).
Overall, we remain of the view that the dynamics we identified and set out in
CP15/39 are valid and provide us with a reasonable basis for expecting that our
proposals will deliver benefits, including for consumers. However, we recognise
that this overall conclusion is not guaranteed, given the uncertainties involved.
The proposed intervention will harm certain types of consumer in particular
2.16 Some responses from CMCs and consumer bodies argued that we had provided particularly
weak evidence that our proposals would benefit vulnerable consumers. In particular, they said
that we did not sufficiently take into account that:
• Consumers in nancial difculties often have multiple credit products and potential PPI
mis-selling complaints, but lack expertise to resolve these. They can tend to ignore nancial
communications and miss deadlines.
• Many of the mis-sales which have not been complained about yet are as valid as those
already redressed. But they are likely to be less straight forward cases and involve consumers
who struggle with forms and processes.
• Consumers in nancial difculties who fail to complain before the deadline will not only not
receive redress but have to continue to pay interest and charges on the repayment debts
that their mis-sold PPI premiums contributed to.
Our response
We do not think that the complaints which would be made in the next few
years are any less valid than those made previously. We also accept that many
potential remaining complainants may be those with especially complex nancial
circumstances. However, we do not believe this is a reason not to intervene.
Rather, these consumers are precisely those who will get most potential benet
from being prompted to act and from getting redress which will help them with
their difcult nancial circumstances.
We set out more details on how we propose to reach out to more vulnerable
consumers and make things easier for them to complain in Chapter 3.
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2.17 Some responses argued that we had not fulfilled our obligations under the Public Sector Equality
Duty because we had failed to fully consider and address the impact of our proposals on people
who share a relevant protected characteristic (for the purposes of s.149 of the Equality Act
2010) or provide enough information to allow readers of the consultation to provide informed
comment about this impact.
Our response
We clearly acknowledged in our initial equality impact assessment (EIA) in
CP15/39 that our proposed deadline and communications campaign could
present a greater risk of poor outcomes to some vulnerable consumers. This
was particularly true for those with little uency in reading, writing or speaking
English, and for some consumers with protected characteristics, for example,
the very old or those with serious physical or mental health conditions.
However, we also said that we could mitigate these potential adverse impacts by
ensuring that the proposed consumer communications campaign is as inclusive
as possible, including through a programme of appropriate partnership activity.
In Chapter 3 and Annex 3, we set out more details on the potential impact
of our proposals on vulnerable consumers and those with relevant protected
characteristics, and how we propose to either eliminate or mitigate any adverse
impact on them.
The rationale for proposed intervention is biased against CMCs
2.18 Some responses from CMCs argued that our assessment and rationale was especially deficient
and biased concerning their role, when in fact many consumers would lose out if it was not for
the involvement of CMCs. These responses said that we:
• made much of CMCs supposedly having a deterrent effect, even though:
–
most people who had used a CMC were happy with the results, as our own research
showed, and nearly half of other consumers said they would pay for help complaining
–
those ‘put off’ by CMCs were a minority
–
we provided no information about what the CMCs were meant to have done wrong in
this respect
–
there are already guidelines in place to prevent CMC misconduct, so either the criticisms
are unfounded or the CMR is failing to supervise those that break the rules
• did not explore why CMCs are now representing a larger proportion of complainants,
or acknowledge the value they provide; in their view, consumers are at a signicant
disadvantage when complaining themselves because:
–
rms’ processes create obstacles to complaining
–
most consumers have limited appreciation of how mis-selling may have occurred through
unsuitability, poor disclosure or other nuances
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–
rms decline many valid complaints, as they know that few consumers on their own feel
condent to take their cases on to the Financial Ombudsman Service
11
• failed to acknowledge that it is CMCs, not the FCA, that pick up on various systemic failings
in rms’ PPI complaint handling and redress calculations
Our response
We provided a factual representation of our consumer research ndings about
CMCs. These did show up some negative impacts from CMCs’ marketing,
such as the impression they created in the minds of some consumers of PPI
complaints being a scam, and the misconceptions they fostered in the minds of
some consumers about how long and difcult the complaints process would be.
The research found that such impressions and misconceptions did discourage
some consumers at least from engaging with the PPI issue and potentially
complaining.
We have always acknowledged that some consumers may reasonably prefer
to pay for the assistance of a CMC in making their complaint. We also
acknowledge that some CMCs have played an effective role in identifying and
challenging some examples of poor complaint handling by rms, and that our
own supervisory work has benetted from the examples these CMCs have
provided to us.
We discuss what our proposed campaign might say about the role of CMCs in
PPI complaints in Chapter 3 below.
A deadline is inappropriate given continued poor complaint handling
2.19 Some responses from CMCs and consumer bodies said that a deadline was particularly
inappropriate given what they saw as firms’ continued and persistent poor handling of PPI
complaints. They argued this was also evidenced by FCA enforcement actions and high overturn
rates in favour of the consumer at the Financial Ombudsman Service.
2.20 Some of these responses also suggested that any deadline should be conditional and apply only
to firms that show significant improvement, for example, by reducing their overturn rate at the
Financial Ombudsman Service to 20%, and not apply to customers of any firm fined by the FCA
for poor PPI practice during the period before the deadline.
Our response
We agree that many rms still need to improve their performance at the Financial
Ombudsman Service. We will monitor rms’ handling of PPI complaints in the
period leading up to the deadline and immediately afterwards, including through
appropriate ongoing information sharing with the Financial Ombudsman
Service, to ensure rms deal fairly with PPI complaints throughout. We would
take action where they failed to do so.
11 Some CMC responses said they receive large numbers of enquiries from consumers who have tried to complain directly to the
lender, received a rejection letter, and would like a CMC’s help in referring the case to the Financial Ombudsman Service because
they do not feel that is something they can do themselves. These CMCs say they do not take on these cases, but encourage the
consumers to go to the Financial Ombudsman Service directly themselves.
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Also, as we set out in Chapter 3, we are asking rms to commit to improving
PPI complainants’ ‘customer journey’ to ensure that the process works smoothly
and efciently for those that want to check if they had PPI or complain.
However, we do not propose to make the deadline contingent on such
improvements. The reasons for this are:
• We do not consider that there is still a signicant problem with PPI complaint
handling. Around three quarters of PPI complaints are already upheld and
redressed by rms.
• We could not make the deadline contingent on rms achieving a particular
overturn rate at the Financial Ombudsman Service, as, for the reasons we
explained in CP15/39, the headline gures do not necessarily provide a
straightforward indication of the quality of rms’ PPI complaint handling.
• To make the deadline contingent on rms improving complaints handling
undermines our rationale for a deadline - which, among other things, is
about reducing consumer inertia and obstacles to complaining. From this
perspective, the deadline will help more consumers to complain and sooner.
If we become aware of rms handling those complaints poorly, we will still
be able to intervene, including after the deadline, to correct unfair outcomes
for complaints that were made in time.
• The notion of dependency or linkage would cause practical issues. For
example, if we said that there was a deadline for customers of ‘improved’
rms but not for others, this would make for a complex and almost certainly
less effective communications campaign, undermining our efforts to
prompt consumers into action. It could also imply public censure of the
‘non-improvers’ who were not included in the deadline, which FSMA says
we cannot do without full prior enforcement procedures, including the
opportunity to make representations and ultimately go to the Tribunal.
The proposed intervention is politically motivated and sets a bad precedent
2.21 Lastly, some responses from CMCs and consumer bodies said that our proposed intervention:
• is politically motivated, aiming to provide certainty to the banks, primarily for provisioning
purposes, so that publically owned assets can be sold off without any political fallout over
the valuation of the shares
• sets a bad precedent which would:
–
inappropriately benet a sector which, rather than acknowledging the PPI issue quickly
and putting it right, had obstructed resolution
12
–
best reward those rms that have dragged their feet the most
–
send the message to the industry that if it behaves badly enough and makes a big
enough mess the regulator will step in to limit its liabilities
12 By, for example, in their view, ignoring mis-selling concerns for years, and then challenging eventual remedial interventions by the
Competition Commission and FSA through legal action.
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–
cause rms to see it as rational to delay remedial action, reject complaints and lobby for
another early cut-off when new misconduct issues arise in the future
Our response
The extent of PPI mis-selling did grow larger before 2009 than it should
have done. However, remedying the PPI issue has caused the industry
considerable costs of redress and administration, and negative publicity and
reputational damage.
In CP15/39 we carefully assessed a wide range of facts, trends and considerations,
from the perspectives of both our consumer protection and integrity objectives.
Having done so, we reached the view that our proposed intervention was a
balanced proposition that would bring benets, including nality and certainty,
under both these objectives. In particular, we expressed our view that there was
a reasonable basis for expecting that the proposed intervention would lead to
a higher level of complaints and redress than if we did not intervene in the way
we proposed.
Firms will face further considerable costs of redress and administration during
the proposed communications campaign and in the period up to the proposed
deadline. By the deadline, rms would have been handling signicant numbers
of PPI complaints for a decade. Therefore, we do not see that it can reasonably
be said that we are bringing the issue to a premature close or inappropriately
rewarding rms for poor conduct.
If we do see firms being slow to address any future misconduct issues or redress,
or otherwise being obstructive of what we consider to be fair outcomes, we will
take action. Learning lessons from the past, we are now better able to identify
such problems early and make early interventions to address them.
Conclusion
2.22 Overall, having carefully considered all the feedback we received, we still consider that our
rationale for proposing a deadline for making new PPI complaints, and an FCA-led high profile
consumer communications campaign with appropriate messaging, is sound.
2.23 We consider the proposed details of this deadline and communications campaign, and the
feedback we received on those details, in the next chapter.
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3.
The details of the proposed deadline and
consumer communications campaign
3.1 This chapter summarises the main feedback we received on our proposals and questions in
Chapter 3 of CP15/39, together with our responses. First, we discuss feedback on the details
we put forward concerning the proposed consumer communications campaign. Then we
discuss feedback on the details of the proposed deadline rule itself.
The aims of the proposed consumer communications campaign
3.2 In paragraphs 3.19-3.21 of CP15/39, we outlined key insights, including about existing barriers
to complaining, that were drawn from our quantitative and qualitative consumer research and
input from our external media agency. In light of these insights, we proposed that a high profile
FCA-led consumer communications campaign would aim to:
• raise awareness of the deadline, to prompt those who intend to complain or to check
whether they had PPI to act ahead of the deadline
• provide information to consumers on how to check if they had PPI if they are not sure and
have any concerns
• clarify the PPI mis-selling issue, and complaints about it, and help consumers consider
whether they should be concerned
• explain clearly how to make a PPI complaint and dispel existing myths and confusion about
the PPI complaints process
• sign-post consumers to appropriate help
• explore with rms how they can best back the campaign with supportive messaging
3.3 We asked:
Q3: Do you agree with the proposed aims of the proposed
consumer communications campaign?
3.4 Among responses from industry:
• most broadly agreed with our proposed aims
• many emphasised that we should aim to discourage the use of CMCs and encourage
consumers to complain directly and without charge
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• some said that other key aims should be to avoid prompting speculative complaints, and to
highlight consumer responsibilities as well as rights
• some said we should ensure that vulnerable consumers in particular are made aware of the
deadline and of how they can complain
3.5 Among responses from consumer bodies and CMCs:
• some broadly agreed with our proposed aims and underlying consumer insights
• some felt the campaign aims should give greater emphasis to helping vulnerable consumers
and consumers with protected characteristics under the Equality Act 2010, some of
whom may be hard to reach or need additional assistance in understanding the deadline,
considering their own position and complaining
• some did not agree with the aim of raising awareness of the deadline, as they did not
support a deadline, but did support the other aims
3.6 Some responses from CMCs:
• expressed concern that the proposed campaign would:
–
broadcast negative and biased messaging against CMCs and their work, unfairly
undermining it, and portraying all CMCs as low value and high cost
–
fail to give consumers the full range of options about how they could complain, to the
detriment of those least able to complain themselves
–
dissuade consumers, including vulnerable consumers, from using CMCs at the precise
time they most needed their help – ie before the deadline
• said that a responsible campaign should make consumers aware of all available channels
to complain and promote the services of responsible CMCs, particularly to vulnerable
consumers and those with multiple debt and PPI products
Our response
Vulnerable consumers and consumers with protected characteristics
In light of feedback, and to reect appropriately:
• our updated EIA and its ndings (see Annex 3), which takes account of
the report we commissioned from equality and diversity experts Goss
Consultancy Ltd (GCL), published alongside this publication
• the extensive additional work we have conducted, and evidence we have
gathered, since CP15/39, which informs our updated EIA and is summarised
there and in the GCL report
• the comprehensive actions we have taken, or will be taking, in light of
the updated EIA, to eliminate or otherwise mitigate the potential adverse
impacts we have identied for groups of consumers who are vulnerable or
have certain protected characteristics
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we are adding the following commitment to our other campaign objectives:
Take account of the recommendations in the EIA and implement them as far as
reasonably practicable when designing the campaign.
We set out how we propose to deliver on this objective in the rest of this
chapter and in the EIA.
CMCs
We do not propose to advise consumers against using CMCs in our proposed
consumer communications campaign, but merely to reiterate our view that
most consumers are able to make PPI complaints effectively by themselves. Our
website already sets out that the process for making a complaint for mis-sold
PPI is free, straightforward and can be done directly by the consumer.
Our intention in the campaign is to inform consumers in more detail about how
to complain directly. Part of our rationale for proposing a deadline was that an
FCA-led communications campaign may empower consumers and encourage
more of them to complain directly to the rms concerned, rather than using
CMCs and other paid advocates, and therefore benet in full from the redress
paid out. We also propose to encourage additional measures that will help
consumers to do this, such as a simpler complaints form (see below).
Having said that, we recognise that some consumers may still choose to use
a CMC. In those circumstances, we will suggest that consumers may wish to:
• check the terms and conditions and that they are comfortable with the
amount of the fee being charged
• check the CMR website, to ensure the CMC is authorised, at:
https://www.claimsregulation.gov.uk/search.aspx
Consumer responsibility and speculative complaints
As noted in Chapter 2, we are not intending to change the mainly complaint-
led approach that has been taken to date, which puts the onus on consumers
to make a complaint where they have a concern about PPI.
Our campaign will clearly explain the kinds of reasons why consumers may
want to complain, so they can make an informed decision about whether to do
so. We will also make it clear that those who have already received full redress
would not be owed more money if they make a new complaint, for example
about Plevin.
We will continue to monitor the types of complaints being received by firms and
the outcomes throughout the period. If there are increases in, for example ‘no
PPI’ cases, we would discuss the reasons behind this with firms, and relevant
bodies such as the CMR, and consider implications for our on-going campaign
messaging.
3.7 Some responses from consumer bodies and CMCs argued that another campaign aim should
be to explain not only PPI mis-selling but the undisclosed commission issue in Plevin and, in
particular, to convey the message that many consumers who had previously complained, but
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been rejected as not mis-sold, can now make a new complaint about undisclosed commission
(as we proposed in CP15/39 para 5.89).
3.8 Some responses from industry also said clear messaging about Plevin was needed, so consumers
would understand the circumstances in which they would be entitled to complain about non-
disclosed commission. However, these responses emphasised that:
• this is likely to be a complicated message for customers to understand and needs to be
positioned carefully
• the message on Plevin needs to be clearly distinguished from grounds for mis-selling
complaints, so that customers do not mix up these separate grounds
• messaging should make clear that consumers who have been fully redressed should not
make another complaint, as they would not receive any further redress
• the scope of s.140A and which credit agreements fall within it should be explicitly set out
in the campaign
Our response
Our communications campaign, in particular our website and helpline, will:
• explain the Plevin issue, including clarifying which credit agreements would
fall within the scope of our new rules and guidance
• highlight consumers’ right to complain about undisclosed high commission,
including when they have already previously unsuccessfully complained
about mis-selling
• make clear that those who have already received full redress should not
make a further complaint based on Plevin
We are exploring with rms and the Financial Ombudsman Service a streamlined
complaint process for complaints which only involve Plevin issues, for example,
because the complainant has already previously complained unsuccessfully
about mis-selling (see chapter 5).
As noted above, we will continue to monitor the types of complaints being
received by firms and the outcomes throughout the period.
The audience, channels and costs of the proposed communications campaign
3.9 In paragraphs 3.22-3.34 of CP15/39, we proposed:
• that the consumer communications campaign would be designed to reach all adults in the
United Kingdom, and therefore include:
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–
broadcast and high reach channels (TV and outdoor advertising) to raise awareness of
the deadline, combined with digital advertising signposting consumers to a dedicated
online hub and helpline for information and advice
–
a programme of public relations and partnership activity, including communications to
reach consumers who may be harder to reach via traditional marketing channels
• a budget for this campaign of £42.2m over two years
3.10 At paragraphs 3.35-3.44 of CP15/39, we outlined various alternative interventions that we had
considered but not proposed, including requiring firms to send contact letters to all customers
they could identify as having been sold PPI.
3.11 We asked:
Q4: Do you agree with the proposed audience, channels,
and cost of the proposed consumer communications
campaign?
3.12 Most responses from industry:
• Agreed that establishing a credible and authoritative voice for the campaign would be
crucial to its success. Some further suggested that this could be achieved by our partnering
with other key stakeholders such as trusted consumer bodies.
• Broadly agreed with the proposed audience for the campaign, and it being conducted
through multi-channel marketing, public relations and partnerships. However, some also
said that there should be more focus in the design and budget allocation on targeting those
consumers not yet reached who are vulnerable or otherwise harder to reach.
• Emphasised the importance of industry involvement in taking forward the operational and
marketing aspects of the campaign. This includes mapping the customer journey and the
public relations elements, to ensure the campaign is as effective and good value as possible.
• Stressed the importance of reviewing and learning from the campaign as it evolves.
• Underlined the importance of phasing the advertising bursts to avoid unmanageable spikes
in complaints, particularly just before the deadline. They also stressed the importance of our
telling rms in advance of the scheduling, so they can resource accordingly to handle the
ow of complaints.
• Stated that rms would support the campaign through their own initiatives and information
provision – though some asked for a clearer steer concerning what we might expect of them.
3.13 Some responses from consumer bodies also broadly agreed with the details of our proposed
campaign, but said it would need consumer body involvement, as trusted partners, to
reassure consumers.
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Our response
Since CP15/39, we have met with the British Bankers’ Association (BBA), the
Finance and Leasing Association (FLA), and some of their member rms in
order to discuss the operational implications if the campaign proceeds. We
have also begun to discuss how rms might draw their customers’ attention to
the deadline and to the steps a consumer should take if they want to check or
complain about PPI. This includes an analysis of the different points at which a
customer might be reached by our campaign and the steps they might take as
a result, including visiting our website, calling our helpline, or contacting their
bank or a consumer organisation – we refer to this as the ‘customer journey’.
We are encouraged that the majority of rms indicated in their responses that
they were keen to support the proposed campaign by issuing communications
to their customers in order to raise awareness of the deadline. We have
not stipulated what type of support rms should provide, as rms will hold
information about customers’ preferred method of contact and have their own
views about how best to promote the deadline. However, we would expect to
see more detailed plans from rms for this closer to the time of any campaign
launch.
Similarly, we have met with consumer organisations and organisations that
support vulnerable consumers in order to understand their experience of the
PPI complaint process, customer journey and, in particular, the barriers that
vulnerable consumers may face. We intend to continue these discussions with
a number of organisations.
Our own helpline staff are trained to identify vulnerable consumers or those
with specic communication needs. We anticipate that we would be able to
support the vast majority of consumers that come through to us but we are also
exploring with consumer bodies and other potential partners whether it would
be appropriate to refer certain consumers to them where it is clear that they
require additional assistance. We set out more information on our approach to
partnerships below.
If we proceed with our proposals, we will monitor the campaign throughout
the two year period to assess its impact against our objectives, including the
levels of consumer awareness of the deadline and whether those consumers
who want to check or complain know where to get the information they need.
We discuss and outline key performance indicators below.
3.14 Most responses from consumer bodies and CMCs, however, expressed concerns about our
proposed campaign and its potential effectiveness.
3.15 Some said that we had not provided sufficient details on:
• the campaign to enable stakeholders to comment on its potential effectiveness
• the impact of a deadline and campaign on consumers with protected characteristics,
breaching our obligations under the Equality Act 2010
• how the campaign will work for vulnerable consumers
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Our response
Our research highlighted that some consumers have ‘switched off’ to messages
about PPI, and so our intention is to help consumers re-engage with PPI,
decide whether or not to complain and if so, to act ahead of the deadline.
Our research shows that consumers require an authoritative, impartial, multi-
channel campaign to overcome the barriers they face when engaging with PPI.
Vulnerable consumers and consumers with protected characteristics
In our updated EIA at Annex 3, we set out:
• the detailed feedback received in relation to protected groups and
vulnerable consumers
• the steps we have taken since CP15/39, including instructing equality and
diversity experts GCL to produce a report on the potential impacts of the
proposals for protected groups and vulnerable consumers
• additional steps we would take, as a result of our further analysis, when
designing and conducting the campaign
• how this assessment has impacted our consideration of whether to proceed
or not with the proposals
Audience
Our target audience is all UK adults who are 23years old or over, because we
know that those younger than this would not have been 18 or over when the
majority of PPI policies were sold and therefore were not eligible for it and are
unlikely to have been sold it.
Building on the wealth of consumer insights we gathered ahead of the
consultation, we have undertaken further quantitative research to help us
identify, target and reach key audience segments. Our three main identied
audience segments are ‘Likely PPI Holders’ (including some who say that they
know if they have or had PPI, and some who say that they do not know) who
we think, respectively:
• intend to make a decision on engaging with PPI (informed by high nancial
engagement and high propensity to complain)
• haven’t made a decision on engaging with PPI (informed by high nancial
engagement and low propensity to complain)
• are unsure about engaging with PPI (informed by low nancial engagement)
These audience segments have been built into the media industry database
target group index (TGI) which our media planning agency uses to assess media
consumption patterns. This will indicate how best to target these segments
among adults aged 23 or over.
Our campaign will also address people who know they have PPI but either
do not want to make a mis-selling complaint or have complained previously
but been rejected. We will re-engage these consumers with PPI, in particular
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by informing them about Plevin and undisclosed commission and signposting
them to further information and help about this.
Given the scale of the PPI audience and the communication challenge, our
proposed campaign will take the form of a fully integrated multi-channel
communications campaign.
Advertising
We will use broadcast and high reach channels such as TV, out of home media
(e.g. billboards) and digital display advertising to create awareness of the
deadline, highlight the credit products PPI was associated with and signpost
people to further help and support. Using a combination of these channels we
would intend to reach 96% of our target audience. Our approach would:
• Be designed to align with those moments when consumers are looking at
nance related content online.
• Have longevity whilst being cost effective by using large bursts of broadcast
media (i.e. TV ads), with lower weight media (i.e. billboards and other
out of home, digital and selected targeted websites, and public relations
activities) running in-between to capitalise on awareness. We will measure
the effectiveness throughout and adjust our campaign as necessary.
• Achieve a seamless consumer journey so that people who respond to our
broadcast advertising channels, or click on a digital display advert, can easily
nd our website or helpline number and get clear, useful information.
We anticipate running four main ‘bursts’ of advertising over the 2 year period
to raise awareness, each lasting four to six weeks. This would be supported by
‘always on’ communications including, as described below, our website and
helpline and through partnerships.
The advertising would be phased and staggered to help avoid an unmanageable
‘surge’ in complaints. We would keep rms regularly informed of our plans and
expect them to put in place sufcient resources to deal with consumer enquiries
and complaints, particularly as these are likely to increase as the deadline
approaches. Communications through partners and public relations should
ensure consumers still have the opportunity to see and hear about the deadline
and the campaign messages during the time between bursts of high reach
paid-for advertising. This should also help provide a steady ow of responses to
rms, our contact centre and our website in between the bursts.
As is usual for a campaign of this scale, we have undertaken preparatory testing
of potential advertising concepts. That is, we have produced examples of what
the advertising might look like, along with draft scripts and messaging, and
tested them with our audience. We are developing and testing the advertising
concept to ensure that it would:
• capture our target audience’s attention by engaging a broad spectrum of
people across different demographics, attitudes and positions concerning
PPI, including both people who aren’t sure if they had PPI and those people
who are sure but have not decided yet if they will complain
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• cut through a cluttered PPI advertising landscape and be distinct from
other advertisers
• have a clear message and call to action
• be perceived as coming from an authoritative and trustworthy source
• achieve longevity and allow opportunities for developing the idea further
across the two year campaign to keep it interesting and relevant to
our audience
• have the capacity to deliver a range of messages to overcome the complex
barriers around the decision to engage with the campaign, the PPI issue and
the deadline
We have tested four distinct advertising concepts designed to deliver against
our campaign objectives. We are not able to include detailed information about
these concepts, as this would undermine their eventual impact and effectiveness.
To test our creative approach, we conducted large-scale qualitative research,
speaking to more than 250 consumers, in 33 focus groups and 39 in-depth
interviews. The sample specication was representative in terms of demographic
proles (gender, age, socio-economic group), region and PPI status.
The research included focus groups and interviews with vulnerable consumers
and those with protected characteristics of a type we felt could potentially
suffer an adverse impact from our proposals, based on our review of nancial
knowledge, condence and likelihood to complain. These were older people
(in particular those over 65 and those over 75), women, those with disability,
sensory and cognitive impairments and members of black and minority ethnic
(BAME) communities (some of whom had English as a second language). We
spoke with organisations who work closely with these consumers and have
taken account of their feedback in selecting the creative route and media
channels, and will take into account their advice on adapted communications.
Given our previous work on vulnerability, and on the basis of evidence relating
to the lower likelihood of people on lower incomes making complaints, we
also tested the advertising concepts with consumers on low incomes, many of
whom had low nancial condence.
The results of all this research have indicated a clear choice of creative route to
take forward for the proposed campaign and shown it to be the approach most
likely to deliver the desired impact with our audience. The research highlighted
areas for creative development which will be taken forward prior to re-testing
our chosen concept in its developed form.
Public Relations
In addition to running advertising, we intend to proactively share our campaign
messages with journalists with a view to generating consumer news stories
and features in the press, including TV and radio programmes, newspapers and
consumer magazines. This will help raise awareness of the PPI deadline and
convey the more nuanced and complex messages, for example concerning the
details and implications of Plevin.
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Website
This would be a dedicated PPI campaign hub, hosted on the FCA’s website, and
providing clear and simple information. It would be developed and tested to the
‘AA’ level of accessibility in the Web Content Accessibility Guidelines (WCAG)
2.0, in line with the main FCA website. It would be likely to include, but not be
limited to, the following:
• an explanation of what PPI is, and what types of credit product it was
associated with
• information about mis-selling and undisclosed high commission
• a step-by-step decision tool to help consumers navigate through PPI
information and reach a decision about whether to check if they had PPI, or
be concerned or complain
• guidance on how a consumer can check if they had PPI
• a template complaints form based on the Financial Ombudsman Service form
• a link to the CMR’s register of authorised CMCs
Helpline
The helpline would be a free phone number and a source of information for
consumers about PPI.
For those who do not know whether they had PPI, we will explain what PPI is,
the products it could be associated with, how a consumer might check whether
they had it, how to complain and what to do if a complaint has been rejected. If
consumers know they want to complain and which rm they want to complain
to, then the helpline will walk them through the process, which may include
directing them to the relevant website or providing contact details. The helpline
staff will be trained to identify the additional support required by vulnerable
consumers or those with relevant protected characteristics and will either refer
them to the rm’s specialist support service or to one of our partners.
Partnerships
For a range of reasons, partner organisations can enhance the impact of our
proposed campaign with particular audience groups. For example:
• where messages come via a trusted third party, increasing the sense of
relevance for particular audience groups
• where messages have been tailored, by us or by the third party organisation,
increasing the accessibility of the messages
• where arrangements are in place for third party organisations to have the
relevant resources to support audiences in taking action, increasing the
likelihood of complaining by those facing the most signicant barriers and
those least likely to have taken action on PPI so far
• by tapping into the credibility of a range of sector/audience experts and
thought leaders
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• through social media support, for example blogs, tweets, likes and shares,
leading to increased online share of voice (and increased word of mouth
marketing)
• by search engine optimisation for our messages in comparison to other
stakeholders advertising this issue
Our helpline already has a range of very effective partnerships with organisations
that support consumers who may be vulnerable and we brief helpline staff
from these organisations. We are exploring how we can continue providing this
service during the campaign period.
As set out in CP15/39, we recognise that working with partners to help us
reach and assist audiences that are vulnerable or harder to reach will be
important to support the proposed campaign. Since then, we have undertaken
detailed scoping to inform our partnership strategy. This includes analysis of
protected groups affected by a PPI deadline and the mapping of organisations
and advocacy groups that can help us reach those audience groups.
We have received expressions of interest from a number of organisations,
including four consumer bodies with reach across the UK and a number of
other organisations covering:
• disability
• sensory impairment
• cognitive impairment
• mental health
• older age
• nancial difculty
• homelessness
• single parents
• carers
Where we identied that there might be an adverse impact, we have tested our
advertising concepts and discussed channel selection with relevant organisations
to seek to ensure the campaign will effectively reach and resonate with those
audiences. A summary of the actions we have already taken and plan to take in
the future is set out in our EIA at Annex 3.
We have started to plan a range of options for partnership communications.
We plan to offer partners a suite of communication materials, for example
adapted communications for those groups that need it, how-to-guides and
tool kits to enable partners to assist consumers with checking or complaining.
We will explore how partners can best distribute information related to the
campaign and provide communication materials accordingly, for example
posters in branches, leaets, messaging in newsletters, websites and via social
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media. We would be guided by the advice we have received to date from
advocates and any further advice we receive from the proposed partners about
what their consumers would need and what their organisation can offer in
terms of resource and time.
Mapping the customer journey
The customer journey describes what happens from the point at which our
audience sees or hears our campaign, reaches one or both of our touch
points (website and helpline), accesses the information we provide there to
enable them to make a decision and, if appropriate, takes action. Given there
are a number of stakeholders potentially involved in this journey (e.g. rms,
consumer organisations, CMCs, the Financial Ombudsman Service), it is critical
that we align our offerings and ensure a smooth consumer experience. We are
currently working with stakeholders to discuss and consider the most efcient
and effective consumer journey. This work will cover:
• enabling consumer decision-making
• avoiding consumer confusion
• avoiding consumers leaving the journey too soon
• the needs of vulnerable consumers e.g. adapted communications, access
to translation services, and partnerships with organisations who can offer
extended support
• helping all parties to plan to have the right resources in the right place at
the right time
• appropriate links or hand-overs to external stakeholders such as the Financial
Ombudsman Service
Other feedback on our proposed consumer communications campaign
3.16 As well as the broad points discussed above, most responses from consumer bodies and CMCs also
made various specific comments about our proposed campaign and its potential effectiveness.
The proposed campaign approach is not adequate
3.17 Most responses from consumer bodies and CMCs expressed various doubts that the campaign,
as proposed, would deliver its aims of ‘cutting through’ existing ‘noise’ around PPI and
changing consumer behaviour, and said that only firms writing directly to PPI consumers could
achieve this.
3.18 Specifically, these responses said the proposed campaign would not work because:
• CMCs have long spent vast sums trying to raise awareness of PPI, accompanied by wide
media coverage and consumer body information. Yet many consumers still do not even
know they were sold PPI, while the FCA’s own research shows that 26% of people had still
not heard of PPI at all.
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• The proposed FCA campaign follows the same well-trodden marketing routes. It does not
look different from, or better than, what has gone before or any more likely to reach many
of the remaining potential complainants.
• The campaign being FCA-led will not help its impact because the FCA has low levels of
brand awareness among the public.
• In a 30second advert you can only get a limited amount of information across (i.e. ve
sentences). No matter how creative the agency, this can only deliver a simple “Act before
the Deadline” message, and cannot sufciently underline the importance of the PPI issue or
explain the various misconduct scenarios.
• A general communications campaign won’t make people aware of whether they personally
have cause to complain and is therefore unlikely to get them to act.
• A deadline-focused message would only appeal to consumers who believe they had PPI. It
will not help or register with the many consumers who remain unaware that they had PPI
or are wrongly convinced that they did not.
• Without highlighting all of the potential disclosure and suitability issues, the average
consumer will still be left without enough knowledge to complain effectively themselves.
3.19 These responses said, therefore, that:
• the proposed campaign needs to be supplemented by rms writing clear letters directly to
identiable PPI customers to explain:
–
that they have or had PPI
–
who their lender was (if different from the PPI distributor)
–
the kinds of issues that have arisen with PPI (types of mis-selling and undisclosed
high commission)
–
the various ways of making a complaint (which, CMCs said, should include the fact that
the customer can make a complaint through a paid third party)
–
that there was now a deadline for complaining
• such letters should be dual branded by the FCA and rm, and enclose an impartial leaet
• the letters can be supported by the wider communications campaign, which can ask
consumers to ‘look out for your letter’
3.20 These responses said that such campaign-supported letters would:
• be a different kind of communication that could cut through the existing advertising that
many consumers are ignoring, and help overcome consumers’ lack of trust that rms would
help them with PPI complaints
• provide important new information to those who weren’t sure they had PPI, and correct the
misapprehension of those convinced they had not
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• be comprehensive enough to explain more complex PPI mis-selling scenarios
• generate sufcient certainty for consumers to know that they personally may have been
harmed and have cause for complaint
• help deliver the complex messages to vulnerable and visually or hearing impaired consumers
3.21 These responses in support of letters from firms further commented variously that:
• the cost should be borne by rms in addition to the campaign fee
• we had not evidenced rms’ alleged ‘records gaps’ and anyway should not allow poor
record keeping to limit their communications and liabilities
• rms should at least write to those consumers they can identify, as the letters will greatly
benet them, and the campaign can make clear to other consumers that receiving a letter
is not necessary to make a complaint
• letters should at least be sent, given there are no such records issues, to:
–
the two thirds of ‘high-risk’ customers who have already received contact letters from
rms but not responded, as additional reminders to act (given that nearly all of those
who do respond are redressed)
–
those consumers who had complained previously but whose complaints were rejected
or incorrectly handled
–
consumers who were at high risk of past mis-sale due to renancing and a chain of loans
and PPI policies
3.22 In contrast, all responses from industry agreed that firms should not have to write letters
directly to consumers because in their view:
• it would be impractical and disproportionate for rms to proactively identify and
communicate with all PPI customers
• it would be wasteful to require rms to contact customers with the same messaging as the
wider FCA campaign, and confusing to provide different messaging
• letters may have supercial appeal, but experts have shown that letters do not drive the
desired behaviours
• there shouldn’t be a need for letters if the media campaign messaging is strong enough
• it would be hard to justify, as rms have already conducted extensive customer
contact exercises
• many past PPI customers have moved address or are deceased
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Our response
Whilst awareness of the FCA brand may be lower than for some consumer
bodies, our research showed there was a need for an authoritative ‘government’-
like brand to make audiences pay attention to PPI. Response in our initial testing
to the FCA logo indicated potential for this to provide reassurance. We will
explore further in testing the most effective way of ensuring that consumers
understand that the communication (in whatever form) is from a source that
can be trusted. We also intend to work with well-known consumer groups to
bolster the reach of the campaign. In addition, we have ‘in principle’ agreement
from rms to support the campaign. However, as noted, despite this planned
involvement of other parties, we know from our consumer research that it is
important for any further communication on PPI to be impartial, which is why
we remain of the view that the FCA should lead the campaign.
Concerning consumers who are not sure, or have forgotten, whether they had
PPI, we remain of the view that it is reasonable, including from the perspective
of consumer responsibility, to expect consumers to take steps to check this and
to do so within a reasonable timeframe. Prompting such consumers to check
would be a key message in our proposed communications campaign, which we
are carefully designing to give appropriate prompts at appropriate times. We
specically included in the advertising concept research and testing consumers
who were not sure if they hold or held PPI and they agreed the adverts would
prompt them to check.
It may be that there are some consumers who are wrongly convinced that they
were not sold PPI, for example because they recall clearly saying that they did
not want it. We included consumers who did not think they had PPI in our
testing of the advertising concepts and we think it is reasonable to expect
even these consumers to check this as our proposed campaign would include
messages explicitly identifying products which might have had PPI associated
with them, in some cases potentially against the consumers’ wishes.
We have carefully considered whether we should require rms to write letters
to those customers that hold or held PPI.
In CP15/39 (paragraph 3.40), we said that rms had told us that:
• the size, variety and age of their PPI back books mean that they have
substantial gaps in their records
• as a result, there are many customers they cannot identify at all, or do not
have current addresses for
• even for those parts of the back book without complete gaps, they would
face signicant expense and practical challenges interrogating and collating
the information they do hold into an accurate database they could use to
make the mailings (for example, because the data is held on a number of
legacy databases or storage media, such as microche)
Following CP15/39, we asked a sample of rms to provide us with further
information about these matters. Broadly, this information suggested that, in
respect of any potential mailing to past and present PPI customers:
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a) A signicant minority for some rms (predominantly among pre-2005 sales)
could not be included, due to substantial and irretrievable data gaps about
the sales or policyholders (with the relevant records lost or discarded by third
parties in some cases).
b) A signicant minority for some rms, many of whom still have an active
relationship with the rm, probably could be written to, but only after
extensive preparatory work including data cleansing (often in legacy systems)
and, for some, work to trace their current addresses (often requiring the use
of agents
13
).
c) For a signicant proportion (predominantly among pre-2005 sales), some
rms could not say in advance whether these customers could be included
in a mailing following similar extensive and expensive preparatory work, or
whether they would remain unidentiable or un-contactable despite such
work. In some of these cases, rms said they had incomplete records and
would face data protection and other obstacles in trying to complete them.
Such preparatory work is estimated by rms to take between 18 and 36 months,
and cost them several million pounds each. They estimate that conducting
the mailing itself would then take around a further 24 months and cost them
several tens of millions of pounds each.
Given this additional information, we remain of the view that it would be very
difcult, and perhaps impossible, for rms to write to the many consumers for
whom they may not hold records, particularly for older sales before 2005, and
that rms may struggle to construct comprehensive and accurate databases
from such records as they do hold. Accordingly, any mailing exercise is likely,
even with rms’ best efforts, to leave large numbers of consumers without
any letter. This would lead to a risk of confusion, if a consumer who does not
receive a letter wrongly assumes that this means they did not have PPI and then
disregards our wider campaign messaging.
In light of these considerations, and the substantial cost and reallocation of
human resources it would require of most rms to achieve even partial coverage
of their back books, and the fact that many rms would probably not be able
to prepare and execute the mailing before our proposed 2year deadline fell,
we remain of the view that at this advanced stage in the PPI redress exercise,
requiring rms to send out communications to all identiable PPI customers
would be impractical, disproportionate and hard to justify.
In any case, we also consider that such an exercise is not necessary, because, for
the reasons set out earlier in this chapter, we are condent that our proposed
multi-channel marketing campaign will be sufciently effective at reaching and
prompting consumers to check or complain, including those who are uncertain
whether they had PPI or think they did not. In particular, the proposed campaign
will run over a two year period and provide multiple reminders to audiences
that they need to make a decision about PPI and, if they want to check or
complain, do so before the deadline.
13 One firm said that 10% of its customers change address each year.
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Firms have already proactively written to consumers about 5.5m policies sold
after January 2005 that had been identied as at high risk of having been
mis-sold (following root cause analysis of complaints). We estimate that most
SPPPI sold with unsecured loans since January 2005 have now been complained
about and/or featured in a contact letter, and over half of RPPPI sold with credit
cards since January 2005.
We consider that it would be disproportionate to compel firms to send a
reminder letter when we have no evidence to suggest that consumers have not
received their initial customer contact letters and when a third did complain
in response.
The proposed campaign budget is too small
3.23 Most responses from consumer bodies and CMCs said that the proposed £42.2m budget:
• was not large, spread over two years, and probably not enough to deliver its aims
• implies an actual annual communication budget of well under £20m (given other
administrative costs) which looks low in light of:
–
CMCs’ historic and continuing spend
–
experience of similar sized campaigns which operated with some success but did not
achieve anything close to a universal recognition
• should be substantially increased
3.24 In contrast, responses from industry saw the proposed £42.2m budget as either:
• ‘generous’ for the stated aims and a campaign of this type, being:
–
more than sufcient to fully inform consumers of the deadline and what they need to
do if they feel they have reason to complain
–
comparable to the total annual advertising spend of several well-known nancial
services rms
–
sufcient to run TV adverts across the whole period, always-on digital media support,
heavy bursts of out of home marketing, and some press support
–
sufcient to reach c.95% of the population, with individuals seeing the message 100
times on average
or
• ‘excessive’, because it would support:
–
a degree of intensity that was disproportionate given the already high levels of public
awareness of PPI
–
four £6m bursts of advertising activity, which seems too high, particularly for the two
middle bursts
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–
reaching 96% of adults aged 23 or over, which is much more ambitious than a typical
rm marketing campaign would undertake
–
high cost broadcast media channels reaching a very broad segment of the population,
whereas better targeting of certain publications and channels could more efciently
drive awareness in more specic audience segments
3.25 On practicalities, responses from industry also:
• said we should provide more granular detail about the proposed budget
• expected attribution of the budget to take place only once the specic objectives and
targets were nalised
• asked if the FCA headcount ‘to run the campaign’ included the necessary resources to staff
the proposed helpline
Our response
The total campaign costs of £42.2m include £7m VAT.
We undertook a thorough budget setting exercise, drawing on media industry
planning tools and benchmarks provided by our contracted media agency.
We factored in a range of considerations when setting the media budget.
These included the scale and complexity of the PPI deadline communication
task, phasing requirements, the sizeable target audience and the existing
communication barriers which the campaign would need to overcome. We
used this analysis to set the required reach and media budget which, based on
our analysis, we believe will effectively meet the campaign objectives.
We would continually monitor campaign activity and optimise media spend and
phasing throughout the two years as appropriate.
The budget would also need to cover setting up and stafng the proposed
dedicated helpline (which will be outsourced but overseen by FCA staff), the
design and delivery of the campaign website, campaign collateral (including
producing TV adverts, agency fees, testing and evaluation) and the FCA staff
costs to run and manage the campaign.
We will ensure value for money by evaluating the campaign performance on an
on-going basis, optimising our advertising in light of this and conducting media
audits to review media pricing and quality. We work with a roster of Official
Journal of the European Union (OJEU) contracted communications agencies,
procured to support campaign development and delivery. All contracts, agency
fees and deliverables are robustly reviewed and assessed on an ongoing basis
to ensure our campaign investment drives value for money.
Campaign duration and length of deadline
3.26 Some responses from consumer bodies and CMCs said that if there has to be a deadline, then
both it and the campaign should last three years or more. This would give consumers time to
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explore their situation and make more than one complaint if necessary, and ensure all affected
consumers have adequate opportunity to complain.
3.27 In contrast, some responses from industry said the campaign and deadline should last only one
year, because:
• there is compelling behavioural evidence (provided in a third party report) that this provides
the strongest ‘nudge’ and is more likely to spur consumer action
• most complaints will be received at the start or end of the period so a longer period in the
middle won’t make a difference
• consumers will become disengaged and fatigued with the advertising if it lasts more than
one year
• one year is sufcient time to complete the process of nding out how to complain and
doing so
• awareness is already high among consumers and the general issues around PPI have been
in the public domain for a long time
• a number of consumers have already been contacted pro-actively by rms
• consumers and CMCs will take advantage of the 8% interest rate on redress if the campaign
is over two years, by waiting to complain just before the deadline
• one year allows for more accurate operational planning, and most rms would be able to
handle complaint volumes within a one year deadline period
• one year would reduce, albeit not halve, the signicant proposed campaign cost
3.28 Other responses from industry, and some responses from consumer bodies and CMCs, agreed
with our proposed two year deadline and campaign. They agreed this was the most appropriate
balance between the need for urgency and the need to avoid giving people an unreasonably
short period to complain or provoking an unmanageable spike of complaints for firms.
Our response
We considered a behavioral economics report provided by one respondent that
argued in support of a one year deadline, based on a series of experiments with
consumers. In our view, the ndings of that report cannot be relied upon, as it
used a number of important assumptions and factors that were very different
from the choices consumers would face in reality.
We are not pursuing closure of the PPI issue at any cost, but rather an orderly
conclusion. From that perspective, we remain of the view that two years is
the optimal period in which to deliver the proposed aims of our campaign. In
particular, two years:
• strikes a fair balance between giving consumers enough of a ‘prompt’
against inertia but also enough time to check or complain, including for
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those who are yet to complain or who are confused (or vulnerable) and need
to get the right information before they make a decision
• gives us enough time to amend the campaign along the way, if necessary,
and rene and evolve our partnership activity (particularly for reaching
vulnerable consumers and those in relevant protected groups)
• gives enough time for consumers to respond to the new Plevin issue, and for
rms to embed our proposed Plevin complaint handling rules and guidance,
and for us to supervise rms’ handling of these relevant complaints
In our view:
• one year would not provide this balance and these opportunities and
would also increase operational and nancial pressure on rms, particularly
smaller ones
• three years would not sufciently prompt inert consumers into action,
and would unreasonably delay our aim of nality and certainty and the
associated benets to consumers and public condence
Feedback on other proposed features of the campaign
3.29 Responses from consumer bodies and CMCs also made a variety of comments on other specific
proposed features of the campaign.
a. Some said that face-to-face help is crucial for some vulnerable consumers, so part of the
campaign budget needs to pay for advice sector staff to provide this to them when checking
or complaining about PPI, as with Pension Wise.
Our response
Our view is that if a vulnerable consumer knows which rm they want to
complain to, then the rm has an existing duty under our complaint handling
rules and, in some cases, the Equality Act 2010 to provide appropriate support
to that customer. We have met with rms to discuss the services they currently
offer for vulnerable consumers, as we expect that higher volumes of vulnerable
consumers may contact them as a result of our campaign.
We have also identied a number of good practices that rms and other
organisations already carry out to support vulnerable consumers and which we
will encourage rms to consider adopting.
As noted, our own helpline staff are trained to identify vulnerable consumers
or those with specific communication needs. We anticipate that we would be
able to support the vast majority of these consumers ourselves. However, we
are also exploring with consumer bodies and other partners whether it would
be appropriate to refer certain consumers to them where it is clear that they
require additional assistance.
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b. Some responses asked whether professional media advice had been sought on audience
targeting and channels of communications, and said this was vital before the campaign
commences.
Our response
As set out at paragraph 3.30 of CP15/39, we have existing OJEU procured
contracts with the external suppliers Manning Gottlieb OMD, a media planning
and buying agency and M&C Saatchi, an advertising agency managing creative
strategy, production and public relations. We have also appointed a number of
other independent external agencies with relevant experience to help design,
test and evaluate the proposed campaign.
c. Some argued that the FCA online hub would merely replicate information available
elsewhere and should signpost consumers to other sources. It was also argued that the
FCA site would not appear in the most popular search engine responses.
Our response
As noted, our consumer research indicates that there is a need for the campaign
to come from a trusted and impartial ‘Government-like’ brand and we believe
the FCA is best placed to lead this campaign. We would aim to become a
trusted and impartial source of information on PPI, assisting consumers to make
a decision and take action where appropriate.
In our consumer journey planning, we are considering the most appropriate and
efficient ways of ensuring that consumers who see or hear our advertising can
easily reach our website or helpline. Our advertising campaign would potentially
drive high numbers of consumers to the FCA website (or helpline). This will help
bring it towards the top of online search pages. We will also invest in pay per
click advertising to ensure our website is easy to find during searches.
d. Some consumer bodies said they were keen to participate in, or set up, helplines and other
partnership activity, in particular to reach vulnerable consumers.
Our response
As noted, FCA helpline staff would be trained to deal with vulnerable
consumers and to identify those that require specic additional assistance. We
are exploring whether it would be appropriate to refer certain consumers to
other organisations where they require further assistance. The FCA website
would have web chat functionality to provide further assistance where needed.
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e. Some said there was a need for trusted consumer body involvement in the campaign and
this should include involvement in, or even fronting of, the advertising.
Our response
We have discussed the proposed campaign with a number of high profile
consumer organisations. If we proceed with a deadline, we will seek to
work closely with these and other relevant organisations to help spread
key messages to affected consumers. However, as noted, we believe that
the FCA, as a ‘Government-like’ brand, is best placed to lead the campaign
including advertising.
f. Some said that we made unreasonable reference to CMCs contributing to raising awareness
of the deadline, when, in their view, the fee cap proposed by the CMR will force most CMCs
out of business.
Our response
We are not relying on CMC activity to support our campaign and its impact or
ensure that it is effective.
Potential improvements in the complaints process
3.30 Many responses from consumer bodies and CMCs said that any campaign needed to be
accompanied by firms making improvements in their complaints process, in particular by
providing smoother routes for consumers to check if they had PPI and complain.
Our response
In general, rms are now handling PPI complaints in accordance with our
requirements. However, we recognise that our communication campaign will
place additional pressures on rms’ complaint handling as volumes increase in
response to the campaign.
It will be important that the process of complaining is made as easy as possible
and that consumers have condence that their complaint will be handled
properly during this period. If so, more consumers will feel condent to
complain, and more will feel condent enough to do so directly rather than
through a CMC or other paid advocate.
Establishing such condence will be especially crucial in the new area of Plevin
complaints. Our past experience suggests that rms’ implementation and
application of new rules and guidance requires careful monitoring.
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In order for customers to have, and maintain, this condence in rms’ complaint
handling, we would maintain a dedicated PPI supervisory team throughout the
period that will take forward a robust and proactive engagement with rms.
In the period before our proposed rules and guidance came into force, this
engagement would include:
• working closely with rms to ensure they are planning and resourcing
appropriately to deal fairly and promptly with the volume of PPI complaints
they may receive in the period before the deadline, including assessing them
under our Plevin rules and guidance where appropriate
• asking rms to provide us with the commission and prot share rates they
took on which PPI products in which periods, to enable us to effectively
monitor the fairness of their subsequent handling of Plevin complaints
• requesting additional monthly reporting from the rms in our project
14
regarding their handling of PPI complaints where Plevin is relevant
After the proposed rules and guidance came into force, this engagement
would include:
• monitoring and challenging rms to ensure that they deal fairly and promptly
with PPI complaints throughout the period and until all complaints made in
time have been appropriately assessed and responded to
• looking particularly closely for any sign that rms are seeking to reduce their
redress bill by unfairly offering Plevin redress to complainants who ought
properly to be paid full redress for a mis-sale (see Chapter 5)
• taking action where rms fail to act fairly in their PPI complaint handling
• continuing to liaise closely with the Financial Ombudsman Service about
rms’ PPI complaint handling, including for some time after the deadline
falls, until all PPI complaints referred to it in time have been dealt with fairly
We will work closely with the CMR in the run up to the deadline to discuss how
it might be able to encourage CMCs to give consumers balanced information
about the potential costs and risks of taking PPI claims to court after our
deadline for complaining has passed.
We have been working with industry with a view to agreeing a series of
voluntary commitments designed to improve the customer complaints journey
and ensure that the process works efciently for those who want to check
about PPI or complain, such as:
• Providing consumers with the option of submitting their PPI complaints
electronically, via an online web form or a third party tool such as the
complaints submission tools offered by some consumer groups.
14 See Thematic Report TR14/14 (August 2014) www.fca.org.uk/static/documents/thematic-reviews/tr14-14.pdf and CP15/39
paragraph 2.4.
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• Streamlining the complaints form, particularly where it appears online,
ensuring that only key sections are mandatory, and making clear that while
providing all of the information will help the assessment of the complaint, it is
not a barrier to complaining if a consumer does not have all the information.
• Ensuring that previously rejected complainants are quickly directed to a new,
short Plevin complaint form which does not ask questions that they would
be unable to answer (e.g. did you pay high commission?).
• Providing a checking process for enquiries from consumers asking if they
had PPI which is as robust as the process that would be used to respond to
a formal DSAR.
• Providing appropriate levels of support for those consumers that require
it, particularly if they belong to one of the potentially impacted groups
identied in our updated EIA.
• Reviewing their operational resilience after the rst media ‘burst’ of our
campaign and potential increase in complaint volumes.
Though any such commitments by firms would be voluntary, we would want
to undertake subsequent supervisory scrutiny, to ensure that they were being
genuinely delivered during the course of the campaign.
The importance of key performance indicators
3.31 Most responses, whether or not they supported the proposed deadline and communications
campaign, emphasised that if they went ahead, it would be vital for us to set in advance
‘Key Performance Indicators’ (KPIs), to measure the success of the campaign. Some responses
further suggested that progress against these KPIs should be published regularly.
3.32 However, there were different views about what should be adopted as KPIs.
3.33 Broadly, responses from consumer bodies and CMCs said that the fundamental measurement
should be PPI complaint numbers and redress. Some said these should be contextualised by
regularly published figures about individual firms covering:
• how many policies were likely to have been mis-sold or sold with high commission rates
• how many consumers have received redress so far, and how many remain who are likely to
be due redress and the amount
• any proactive steps taken to contact consumers and how many complained in response
• uphold rates at the rm, and its overturn rate at the Financial Ombudsman Service, over
time and by type of PPI
• full details of any failings in the rm’s handling of PPI complaints, including full details of
reworked complaints and other remedial action required by the FCA
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• data on how many complaints are turned down by rms as ‘no PPI’, but who the Financial
Ombudsman Service then nds do have a policy
• mandatory independent audit reports on whether PPI redress has been fairly calculated,
with disclosure of any failings and remedial actions
3.34 Some of these responses went further and said that in view of what they see as the uncertainties
around the outcomes of our proposed intervention, progress should be constantly reassessed
in light of such KPIs throughout the two year campaign. We should then extend or abandon
the deadline if we find that consumer outcomes are adverse.
3.35 In contrast, responses from industry said that KPIs should not focus on complaint numbers or
their increase, since the proper aim of the campaign is to increase awareness of the deadline
and PPI issue, not necessarily to increase complaints or redress.
Our response
We agree that it would be important to measure the reach and impact of
our campaign, to evaluate it on an ongoing basis and adapt our approach
as necessary. Our evaluation framework and KPIs would reect our proposed
campaign objectives, so would monitor and track:
• consumers’ awareness and understanding of the deadline date and need
to act
• consumers’ understanding of how to check if they held or hold PPI, should
they wish to do so
• consumers’ understanding of PPI and mis-selling and the issue of undisclosed
high commission
• consumers’ understanding of how to complain, should they wish to do so
• consumers’ responses and actions, including visits to our website, downloads
of the complaint form, and calls to the helpline
We would also monitor partnership activity, including uptake and distribution
of campaign materials.
While we will monitor website and helpline data, the majority of the data will
be captured by quantitative consumer research, specically a monthly online
survey
15
and quarterly face-to-face research. The samples will be representative
of our target audience and enable sub-set analysis of our three key audience
segments. We will use the data to optimise the media plan and rene our
messaging.
We will also be using econometric modelling (applying mathematics, statistical
methods and computer science to economic data) to isolate the impact of our
advertising spend from that of other advertisers. The modelling will incorporate
15 This will be a random location on-line ‘omnibus’ survey of consumers whom we have not selected.
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key metrics from the quantitative consumer research and also complaints and
redress volumes.
We will not, however, be setting any targets for complaint numbers, as complaint
numbers are not one of the campaign aims or success criteria.
The nature, date and scope of the deadline
3.36 In paragraphs 3.1-3.18 of CP15/39, we set out details of the proposed deadline rule, including,
in particular, its proposed:
• Nature: That the deadline should:
–
apply to a consumer regardless of whether they know about the existence of the
deadline, and regardless of whether, or what, they know, about the PPI issue generally,
or their own sale or policy in particular
–
not extend time for any consumer for whom the time limits under our existing rules had
already begun to run or passed.
16
• Effect: That PPI consumers would need to complain to a rm on or before the deadline or else
lose their right to have their complaint assessed by the rm or by the Financial Ombudsman
Service. However, as now, consumers who complain to a rm in time, including before
the proposed deadline, but are unsatised with the nal response they receive from the
rm, would still need to refer their complaint to the Financial Ombudsman Service within
6 months of receiving that nal response (even if the deadline was more than 6 months
away).
• Date: That the deadline should fall two years after the start date of the rule.
• Scope: That the deadline should:
–
apply to new complaints about the sale of a PPI policy, including about undisclosed
commission, where the sale took place on or before the start date of the rule
–
not apply where the PPI sale took place after the start date of the rule, or to
complaints about matters unrelated to the sale, such as delays in claims handling or
administrative errors
–
apply to complaints to the seller about an insurer’s rejection of a claim on the policy on
the grounds of ineligibility or exclusions and limitations; this is because we consider that
such complaints concern matters relating to the sale.
3.37 We also proposed that, as with our existing complaints time limits, the Financial Ombudsman
Service should retain the flexibility to deal with complaints submitted after the deadline. This
would apply where the firm consents to this, or where in the Financial Ombudsman Service’s
view the complainant’s failure to complain in time ‘was as a result of exceptional circumstances’.
17
16 For example, many consumers have received letters from firms in the last few years which warned that they may have been mis-sold
PPI and stated that they had three years from receipt to complain.
17
DISP 2.8.2R(3) and (5).
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3.38 We asked:
Q2: Do you agree with the proposed nature, date and scope
of the proposed deadline?
Nature and effect
3.39 Responses from industry agreed with the proposed nature and effect of the deadline.
3.40 In contrast, most responses from CMCs and consumer bodies argued that it was unfair to
set a deadline which, contrary to our existing rules, would apply to individuals who remained
unaware of having cause to complain and who, for example, had not received an individual
warning letter. Specifically, they felt this was unfair because in their view it:
• departs for no good reason from the successful approach to mortgage endowments (where
consumers received at least one, and often more than one letter warning of potential
detriment, before they ran out of time to complain)
• removes an element of consumer protection that is critical, given the usual imbalance of
information between rm and consumer in nancial services
• sets a poor precedent for future mis-conduct issues and remedies by rewarding rms’
reluctance to make proactive communications and poor record keeping
• goes against the FCA’s own previous guidance about constructive knowledge
18
3.41 These responses therefore argued that if the cost of individual mailing to PPI consumers is
excessive or otherwise impractical, then the correct conclusion is not to impose a deadline at
all, rather than to impose one and rely on a general communications campaign to support it.
Our response
We explained above that we do not consider that it would be appropriate to
require rms to write directly to all identiable PPI consumers, and do not consider
that this would be unfair to consumers, who will receive a sufcient prompt to
action before the deadline from our multi-channel communications campaign.
The PPI issue is not analogous to the mortgage endowment issue and its
communications. It is true that, as with PPI, not all mortgage endowments were
mis-sold. However, unlike with PPI, there was something specic that needed to
be conveyed to all mortgage endowment consumers, to inform their decisions
and actions about their mortgage. This was whether their endowment policy
was on track to reach the target sum and pay off their mortgage or whether it
was likely to fall short – as highlighted in a ‘red letter’. This also put them on
notice that there may be an issue with what they had bought and the conduct
of the sale and that they potentially had cause for complaint.
By contrast, there is no similar straightforward message of a potential problem
with their individual PPI policy that would be relevant to all PPI consumers or
could be readily shared with them. They could only be told whether they in fact
had had PPI and, without particular root cause ndings relevant to their kind
18 For example: www.fca.org.uk/your-fca/documents/finalised-guidance/fsa-fg1217
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of sale, about generic failings generally in PPI selling practices. In our view, this
information would not generally be enough to give consumers constructive
knowledge of a cause for complaint and trigger the three year period for
complaining under our existing rules.
We do not consider our proposed approach to a deadline and campaign sets a
precedent or makes it more likely that we would depart in future misconduct
issues from our usual rules about constructive knowledge and three year period
for complaining. As we noted in Chapter 2, we have proposed the deadline
and consumer communication campaign only after careful assessment of the
PPI issue and trends in complaints and redress. Our proposed intervention is an
approach that we consider is appropriate and beneficial in the specific context
of PPI. We do not consider that it would set any precedent for how we might
approach other misconduct issues or redress exercises in the future. We would
consider those on their own merits at the time, in light of their specific details
and our regulatory objectives and priorities.
Date
3.42 We discussed feedback on the proposed two year deadline and length of campaign above.
Scope
3.43 Most responses from industry agreed with the proposed scope of the deadline.
3.44 However, some said that where a consumer has made a claim on a policy but that claim
has been rejected by the insurer, they should be allowed a six month extension beyond the
deadline in which to complain. This is in case it emerges that the claim was rejected because
of mis-advice or poor disclosure about the policy by the seller at the point of sale. Such a grace
period was seen as allowing for complaints that are wrongly directed to the insurer to be re-
directed to the PPI seller.
3.45 Some responses from consumer bodies and CMCs said the deadline should not apply at all to
complaints about claims on PPI policies that were rejected because the claimant was ineligible
to claim or due to a policy exclusion or limitation. This reflected views that:
• applying the deadline to complaints about rejected claims would leave the consumer
facing signicant nancial hardship, including potentially losing their homes in the case of
mortgage PPI
• the number of such complaints would be limited, so excluding them from the deadline
would not undermine the FCA’s aims
Our response
In terms of complaints being directed to the correct party, there are complaint-
forwarding obligations under our current complaint handling rules. Firms
receiving complaints should forward them to the rm they understand is
responsible. We are not intending to make any changes to these rules but
would remind rms of their obligations under the complaint-forwarding rules.
We do not propose to exclude from the deadline those complaints to sellers
that concern an insurer’s rejection of a claim on the grounds of ineligibility
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or exclusion or limitation. This is because, as noted, we consider that such
complaints concern matters relating to the sale. Also, we consider that excluding
such complaints from scope, even if they are not numerous, would undermine
the effectiveness and logic of the deadline and its ability to provide the certainty
and related benefits that we identified in our rationale.
3.46 We discuss feedback on our proposal to include PPI complaints concerning undisclosed
commission (Plevin) in the scope of the proposed deadline in Chapter 5.
Exceptional circumstances
3.47 Some responses from industry expressed concern that our proposed approach to exceptional
circumstances created too much uncertainty. They asked us to prescribe in detail which
circumstances we and the Financial Ombudsman Service were likely to consider exceptional.
They noted that we had done this in the compensation scheme for sales of card or identity
protection policies through Card Protection Plan (CPP).
3.48 Among responses from consumer bodies and CMCs:
• some agreed that it was important to make provision for consumers in exceptional
circumstances, but were concerned that rms may not set aside the deadline appropriately
in practice
• some said that all consumers in vulnerable circumstances, including those with mental
health problems, learning difculties, or visual impairment, or those experiencing a life
event which makes them vulnerable, or those who have been out of the country, should be
treated as exceptions to the deadline
Our response
In the end, whether exceptional circumstances apply in an individual case is a
decision for the Financial Ombudsman Service, who provides helpful examples
of what it considers to be an exceptional circumstance on its website.
We do not consider that it would be compatible with the principle of ‘exceptional
circumstances’ to extend it to cover whole categories of consumers. Doing so,
and removing many consumers from the deadline’s scope, would also undermine
the benecial effects of certainty about long-term PPI liabilities, and an orderly
conclusion to the PPI issue, which our package of measures is intended to bring.
We have also described in this chapter the steps we are taking to ensure that
the campaign does work effectively for various identied vulnerable consumers
and protected groups.
The Scheme of Arrangement concerning CPP did specify two, and only two,
exceptional circumstances which would allow consumers to make their claim
under the Scheme after its deadline. These were, broadly, if they had been out
of the country for most or all of the period for claiming, or had been seriously ill
or dealing with a family bereavement in the period. The Financial Ombudsman
Scheme could assess if these and other rules of the Scheme had been correctly
applied in a case by the rm, but not depart from those rules or add others.
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The specic provisions concerning exceptional circumstances in the CPP scheme
reected its particular nature as a Scheme of Arrangement that must be clear
in its rules so that affected consumers can vote on accepting it and a court can
approve it. Also, the response required by consumers in that Scheme was very
simple, merely having to indicate whether they wished to opt into it.
We do not see a need to make similar specific provisions concerning our proposed
deadline for PPI complaints. The Financial Ombudsman Service already applies
exceptional circumstances, narrowly and reasonably, in cases where our various
existing time limits in DISP are relevant.
3.49 Overall, having carefully considered the feedback on the details of our proposed deadline rule,
we do not propose to change its nature, effect, scope or date.
Conclusion
3.50 We have carefully considered all the feedback we received on the details of the proposed
deadline and campaign. In light of this and our further creative work and programme of testing,
we still consider that the proposed campaign, once fully designed and rolled out (including
allocating budget to working with partners to deliver our messages in the most effective way
for specific audience groups), would be effective in clarifying and raising awareness of the PPI
issue and prompting consumers to consider their position and, if they decide to complain, act
before the deadline.
3.51 In particular, we consider that the potential disadvantages for certain protected groups and
vulnerable customers set out in the EIA will be eliminated, or, where not eliminated entirely
then minimised to a level where we can be confident that it is reasonable and justified to
proceed, if we take the mitigating actions that we have identified. This view is supported by
GCL. As such, our view is that we are justified in proceeding with our proposals, taking into
account the need to achieve the objectives set out in CP 15/39 and the fact that we do not
think we could reasonably and proportionately achieve the same objectives using alternative
means.
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4.
The proposed fee rule to pay for the proposed
consumer communications campaign
Introduction
4.1 In Chapter 4 of CP15/39 we proposed that the £42.2m cost of the proposed communications
campaign should be met through a new fee rule (under Chapter 3 of the FCA Fees manual).
4.2 Specifically, we proposed:
• to allocate the fee to 18 rms that each reported over 100,000 complaints about advising,
selling and arranging PPI
19
from 1August 2009 to 1August 2015, and which together
represent over 90% of all such PPI complaints reported in that period
20
• to allocate the fee to these rms on a pro-rata basis in line with the total number of such
complaints they reported in that period – which amounts to £3.64 per complaint
• that the amounts the 18 rms would pay would be split in two halves across the two years
of the proposed consumer communications campaign
4.3 We felt that confining the fee to these firms would be appropriate, as they were responsible
for causing most PPI complaints, and would receive most benefit from the certainty and other
effects of the proposed deadline that the campaign will publicise.
4.4 We asked:
Q5: Do you agree with our proposed fee rule for allocating
the costs of the proposed consumer communications
campaign?
4.5 This chapter summarises the main feedback we received and our responses to it.
Feedback received and our responses
4.6 Most responses from industry broadly agreed that the logic of our proposed fee allocation was
preferable to the alternative approaches we had considered (based, for example, on historic
sales volumes or redress payments
21
). They also agreed it was appropriate to allocate the costs
of the campaign to those firms that had generated most of the PPI complaints, rather than to a
19 Under 17(A) in their Complaints Return (DISP 1 Annex 1R).
20 In line with other fee allocation exercises, we proposed the allocation would be at legal entity level, which is also how complaints
are reported to us, including where several legal entities are reporting from the same group.
21
See paragraph 4.6 of CP15/39.
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greater number of firms that had received smaller numbers of complaints
22
, or to the industry
as a whole.
4.7 However, some of these broadly supportive responses from industry also:
• asked us to provide rms with some assurance that they had reported complaints in a
mutually consistent way, to ensure the allocation was accurate: for example, by providing a
more detailed denition of which reported PPI complaints were relevant to mis-selling and
should be counted
• expressed a wish for certainty about their contribution and concern that there was no
contingency built into the planned campaign budget, and warned they would not agree
with our approach if there was any prospect of additional contributions
• suggested that CMCs should also have to contribute a signicant proportion of the cost of
the campaign, to reect their increased revenues from the increased complaints
4.8 Some responses from industry, however, disagreed with our proposed approach, and suggested
various alternative ways to allocate the fee:
• rms who had received most PPI complaints, including many speculative ones that were not
the result of poor selling practices, had already incurred the most costs and so should not
be targeted to pay for the campaign
• the proposed allocation penalises rms who had already prompted complaints through
proactive consumer contact letters and who would thus be funding a campaign which their
own customers would benet relatively less from
• a more appropriate and reliable basis for allocation would be rms’ PPI complaint overturn
rates at the Financial Ombudsman Service
• the allocation should instead be based on rms’ total past PPI sales, minus those already
complained about
• we should also invoice smaller rms who sold, and potentially mis-sold, PPI but have received
few complaints, as doing so would not be disproportionate
• the campaign costs should be spread across all rms that sold PPI
4.9 Most responses from CMCs and consumer bodies agreed that our proposed approach was
appropriate, as it focused on the relatively few firms who, in their view, mis-sold the majority
of PPI policies and who should therefore pay to alert consumers, and that it would be cost-
effective to collect.
4.10 However, some of these responses also:
• said the rule should allow for further sums to be raised in the future if it becomes apparent
that more money is needed to meet the campaign’s aims, including reaching vulnerable
consumers and those with protected characteristics
22 See paragraph 4.11 of CP15/39.
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• said we should ensure that the rms do not deduct their fees from their PPI redress provisions
and payments
• expressed concern that rms would simply factor the fees into their wider business budgets,
increasing prices for customers
Our response
Basis of allocation and consistency of reporting
Firms that have already received large numbers of PPI complaints, including
those prompted by their own consumer contact exercises, have not ‘already
paid their share’. This is because, rstly, proactive mailings, though extensive,
have mainly concerned sales made after January 2005, which for most rms
are a minority of their historic PPI sales, and secondly, it is still the case, for most
rms, that only a minority of their past PPI sales have been complained about.
So the campaign and deadline will still be relevant to the majority of these
rms’ past PPI sales. Equally, given these large proportions of past PPI sales
have not yet been complained about, these rms will still gain the most from
the certainty and other associated benets that our proposed deadline would
bring. For the same reasons, we do not think it would be appropriate for the
fee allocation to be based on ‘sales minus complaints’. We do not think our
reasoning is undermined by the fact that a minority of complaints are rejected
or ‘no PPI’ cases and rms have incurred costs dealing with these.
We do not agree that allocation would be better based on the rms’ overturn
experience at the Financial Ombudsman Service. A rm might have very few
referrals to the Financial Ombudsman Service but have a high proportion of
these overturned. There are also other reasons, which we explained in Annex
5 of CP15/39, why the overturn rates at the Financial Ombudsman Service do
not necessarily or straightforwardly relate to the quality of rms’ handling of
complaints. In any case, it is not clear that there is a link between the overturn
rates and the costs or benets of the campaign to the rms who would then
pay the fee (and their current and future customers). By contrast, our proposed
approach does link the campaign costs directly to those rms who have
caused most expressions of dissatisfaction among their PPI customers and who
would gain the most from the certainty and other associated benets that our
proposed deadline would bring.
We cannot assure rms that there has been complete consistency among them
in how they have reported PPI complaints. However, we have no grounds to
think that any inconsistencies are so signicant that they would dramatically
and unfairly affect the rms’ respective fee allocations. So we do not think it
would be a worthwhile use of rms’ or our resources to try to assess the quality
and consistency of their past reporting or seek to re-calculate the numbers on
the basis of any denition other than the long established one in 17(A) of the
Complaints Return (DISP 1 Annex 1R).
While we accept that the idea of ‘the polluter pays’ could be extended to more
rms that sold PPI or received complaints, including smaller rms, or to all of
them, there is nothing in the feedback on this point that leads us to change
our view that it would not be a proportionate use of rms’ or our resources to
extend the allocation and fee collection in this way.
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So, overall, while we accept that there is no perfect method for this fee
allocation, the alternatives suggested in feedback are not more appropriate or
more practical, including in terms of the data needed to carry them out, than
our original proposal and do not have any other clear advantages over it.
Scope for additional fee
In CP 15/39, we explained that we had worked closely with external suppliers
and used internal value for money benchmarks to develop a budget proposal
for the two year campaign which would successfully deliver our aims.
We have assessed the budget proposal in light of the further preparatory work
we have done on the potential campaign and, in particular, the further work
we have done on how it would reach vulnerable consumers and those with
relevant protected characteristics. As noted in Chapter 3, we remain of the view
that the proposed £42.2m budget is necessary but sufcient.
We agree that it is important to give certainty to the fee-paying rms. We
cannot use the proposed rule to raise more fees from them and do not think
it would be appropriate to revise the rule to allow for this. Nor do we think
it would be appropriate or efcient to change the rule to allow us to raise
initially more than we think we need as a contingency fund. If in future we felt
that more campaign spend was needed, and thus more fees, we think that
we should have to consult on a new rule to do this, following all our usual
policy disciplines.
The impact of the fee on rms’ wider nances
We do not think there is a serious risk that rms will reduce their provisions
for PPI redress to pay the fee and reduce the redress paid to complainants.
Provisions are not the kind of static, nite redress fund that this concern implies.
And if rms were to do this, it would risk non-compliance with their accounting
obligations if it left them under-provisioned for the future complaints redress
they had previously anticipated. In any case, we do not see that there is an
incentive for the rms to do this, given their respective fees would be very small
in comparison to their respective PPI provisions.
Similarly, while it is true, in principle, that the fee adds to rms’ costs and
thus is potentially paid for in the long run by increased prices for customers of
the rm, this is true of all the redress and handling costs associated with PPI
complaints, and of most other regulatory interventions. In comparison, the fee,
and its potential effects on costs and pricing, is not material.
CMC contribution
We do not currently regulate CMCs and so cannot impose any fee rules on
them. In any event, CMCs did not sell or mis-sell PPI and so are not in that sense
‘polluters’. While the proposed communications campaign may, we believe,
prompt more consumers to complain and sooner, some of whom may use and
pay CMCs, the campaign will also make clear that most consumers can make
complaints directly without using CMCs, and aim to make it easier for them
to do so. So, it is not obvious that CMCs will overly benefit from the proposed
campaign or ought to contribute to funding it.
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Conclusion
4.11 Overall, we consider that our proposed approach and fee rule remains fair, appropriate and cost
effective, and we are not proposing any changes to it.
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5.
The proposed rules and guidance on
PPIcomplaints and Plevin
5.1 This chapter summarises the main feedback we received on our proposals and questions in
Chapter 5 of CP15/39, concerning rules and guidance on PPI complaints and Plevin, together
with our responses, including where we are proposing changes.
Rationale
5.2 In paragraphs 5.1-5.12 of CP15/39, we explained that:
• the Supreme Court ruled in Plevin that the failure by the lender to disclose to Mrs Plevin
the large commissions payable out of her PPI premium made its relationship with her unfair
under s.140A
• the Plevin decision was in the public domain and had created uncertainty for rms about
how the judgment should be taken into account in PPI complaints, bringing the risk of
inconsistent and unfair outcomes for complainants
• we considered that intervening with rules and guidance about how rms should handle
relevant PPI complaints in light of Plevin would:
–
reduce uncertainty and enable rms to take a fair and consistent approach to handling
complaints where Plevin is relevant
–
make it easier for us to act if we became concerned that rms were not handling such
complaints appropriately
–
provide a clear approach which the Financial Ombudsman Service could take into account
(along with other relevant considerations) when deciding what is fair and reasonable in
all the circumstances of individual PPI cases
5.3 We asked:
Q6: Do you agree with our rationale for proposing rules
and guidance now concerning the handling of PPI
complaints in light of Plevin, and that it is preferable in
the circumstances that we, not the Ombudsman service,
take the lead in this?
5.4 The majority of responses from industry agreed that we should intervene and with our rationale
for doing so. Some of these responses felt our intervention would reduce the flow of relevant
cases to the courts and that, as sector regulator, our approach would be given some weight
by the courts.
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5.5 However, some responses from industry also said that:
• the value of our intervention would largely depend in practice on the Financial Ombudsman
Service reaching decisions on individual cases that give outcomes which are broadly in line
with our approach
• we should widen our intervention to incorporate rules and guidance for the appropriate
involvement of CMCs in making complaints about Plevin
• relevant case law continues to evolve in the courts, so our intervention might not deter
consumers from continuing to use Plevin as a basis for action in the courts
• our intervention should be seen as an exceptional response to the particular circumstances
of Plevin and the PPI issue, not as the start of regular regulatory responses to new
court decisions
5.6 Most responses from CMCs and consumer bodies said that:
• in principle, they agreed we should intervene
• in practice, they felt our key proposals were so wrong that our intervention would be unfair
to consumers and not bring certainty because large numbers of consumers would take
claims to court instead
Our response
We consider the feedback on our key proposals in the rest of this chapter.
In terms of our aims and rationale, we do not have concerns about consistency
between our proposed approach and the approach of the Financial Ombudsman
Service to deciding individual cases. Although the proposed rules and guidance
are for rms, they will be a relevant consideration for the Financial Ombudsman
Service to take into account – with all other relevant considerations and
circumstances – and give due weight to when deciding what is fair and
reasonable in individual cases. As always, rms will have the opportunity to
understand the Financial Ombudsman Service’s approach from its individual
decisions and, where appropriate, through discussions with the Financial
Ombudsman Service explaining its approach as shown by past decisions. These
opportunities will help rms’ understanding and achieve consistency.
As noted in Chapter 2 above, we do not yet regulate CMCs and so cannot
currently intervene to set rules and guidance for them about their involvement
in PPI complaints. However, we do engage with the Financial Ombudsman
Service, CMR and CMC trade bodies about PPI complaints, CMC conduct and
CMCs’ experiences with rms, and would continue to do so following any
intervention and until we become the CMC regulator.
Consumers will remain free to choose the court route, including if they desire
the kind of assessment a judge would undertake. However, having the fair
alternative of our proposed rules and guidance may help avoid an increased
ow of cases to the courts, with all of the challenges and costs that might
involve for consumers and rms. Our intervention would help to ensure that, in
the particular context of PPI complaints where Plevin is relevant, the framework
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of our complaint handling rules for rms and the availability of the Financial
Ombudsman Service continues to provide its usual simpler, more informal and
free-to-the-consumer route to an assessment and potential redress of relevant
expressions of dissatisfaction.
We have only proposed our intervention in the particular circumstances of the
large ongoing PPI redress issue and the Supreme Court judgment in Plevin that
seemed directly relevant to it, and do not consider that it sets any precedent.
We will continue to consider future issues and case law, in whatever areas
they may arise, on a case by case basis in light of our statutory objectives and
regulatory priorities.
5.7 Some industry responses raised more fundamental concerns about the nature of our proposed
intervention, arguing that we would:
• inappropriately transform the discretionary power that s.140A gives the courts to review
the fairness of a credit relationship, based on the specic and individual facts of a case,
into generally applicable principles which do not allow the specic circumstances of each
customer’s case to be examined
• create a retrospective obligation of commission disclosure, with signicant liabilities
following automatically and inexibly if that disclosure was not made
• prompt increased volumes of fruitless complaints to rms that did not sell PPI which covered
credit agreements within the scope of s.140A-B, or did so only with low commission, and
who did not generally mis-sell PPI
5.8 Such fundamental concerns led some responses from industry to argue that we should
leave s.140A-B entirely to the courts and intervene now only to carve out complaints
relating to s.140A-B from our complaint handling rules and the jurisdiction of the Financial
Ombudsman Service.
5.9 Some responses from CMCs and consumer bodies also said that we should not intervene because:
• creating a rigid complaint assessment process would usurp the function of the courts when
applying the provisions of s.140A-140B, which are much broader in scope and do not relate
to hard and fast regulatory duties
• the consumer could allege (in line with s.140A-B’s scope, which goes far wider than
commission disclosure) that the relationship was unfair due to a variety of other potential
factors concerning the PPI or the credit it covered
• complaints about these matters require a degree of individual forensic analysis that is better
suited to the Financial Ombudsman Service or to the courts
Our response
We do not agree with this characterisation of what we are proposing, or the
contrasting of our proposals with the purpose and scope of s.140A-B.
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On the one hand, we were not proposing a mechanical test or mandatory
redress. Our proposed provisions all took the form of either guidance or
evidential provisions. Further, the provisions explicitly directed that individual
case circumstances (‘all relevant matters’) should be taken into account,
explicitly highlighted the scope for rebuttal of the presumption of an unfair
relationship, and included specic examples of circumstances where rebuttal
might be appropriate (see below).
Whilst not rigidly conning ourselves to Plevin, we are taking it into account
when exercising our regulatory judgement about appropriate assessment
and, where relevant, redress of relevant PPI complaints. We consider that our
proposed purpose, of ensuring fair and consistent complaint handling in this
area, would not be served if we provide rules and guidance that depart too far
from the approach set out in the Plevin judgment and open up obvious gaps
with potential claims and decisions in the courts.
To the extent that a PPI complaint raises matters that may be of relevance to
s.140A-B but does not involve undisclosed commission, those matters would lie
outside the scope of our proposed new rules and guidance on Plevin. However,
rms would still need to consider them fairly, at Step 1 (assessing mis-selling) if
the rm was the seller, and/or within the framework of our existing higher level
(non-PPI specic) complaint rules (as we propose for PPI complaints that raise
breaches of duciary duty – see below).
We do not consider that carving PPI complaints where s.140A is relevant out of
our complaint handling rules and the Financial Ombudsman Service jurisdiction
would assist orderly and consistent outcomes or be fair to consumers or rms.
The Alternative Dispute Resolution (ADR) Directive requires ADR systems to be
fair, and this is of course an outcome we would seek to achieve in any event.
We do not believe that excluding undisclosed commission or other s.140A
issues, and the potentially many PPI complaints where s.140A is relevant, from
the Financial Ombudsman Service’s jurisdiction and consideration, would be
compatible with this Directive.
Our proposals are not creating obligations and liabilities for relevant rms in
terms of levels of potential redress in individual cases. After all, s.140A already
applies to rms and their credit agreements and the Plevin judgment is well
known, certainly among CMCs, and is already giving rise to complaints to rms
and claims in court. Our approach is designed to provide a common framework
within which rms should approach these complaints, and which the Financial
Ombudsman Service will take account of (among other things). Our aim is to
reduce uncertainty and enable rms to take a fair and consistent approach
to handling such complaints. We consider that providing this certainty about
which complaints rms must consider in light of Plevin, and how, will reduce
their relative per complaint administrative cost of handling these, compared
to a scenario where we did not intervene in this way. However, we accept
that our proposed package of measures as a whole may increase the number
of complaints in the period before the deadline, including those where Plevin
is relevant.
Concerning some firms’ fears that they would get caught up in expensive
complaint handling to no purpose or benefit to the consumer, we note that,
as just discussed, the risk they will receive these complaints is already there.
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Moreover, even if a firm’s commission was below the presumptive tipping point
we propose, it would still need to consider arguments that the non-disclosure
of such lower commission created an unfair relationship, for example, because
the complainant was in particularly difficult financial circumstances at the time
of the sale.
Conclusion
5.10 Overall, therefore, we consider that our rationale for intervening and proposing rules and
guidance on PPI complaints and Plevin remains sound.
Scope
5.11 In paragraphs 5.13-5.22 of CP15/39, we proposed that our rules and guidance should apply:
• only to PPI complaints where a claim could be made against a lender under s.140A and an
order made to remedy any unfair relationship under s.140B, and
• to any PPI complaint meeting this criterion, regardless of:
–
the type of PPI policy, for example, whether it covered a secured or unsecured loan,
credit card or other revolving credit, or mortgage
–
the structure of its premium (whether it was single or regular premium)
–
whether the premium was nanced by the credit agreement it covered
–
the nature of the PPI sale (whether it was advised or non-advised)
–
the nature and relationships of the respective businesses behind the selling of the PPI,
provision of the credit and underwriting of the PPI, for example, whether or not it was
sold by a rm that was also the lender
5.12 We asked:
Q7: Do you agree with the scope of our proposed rules and
guidance concerning the handling of PPI complaints in
light of Plevin?
Alignment with s.140A-B
5.13 All responses from industry, and most responses from CMCs and consumer bodies, agreed that
the scope of our rules and guidance should not go beyond PPI complaints relating to policies
that would fall under s.140A-B.
5.14 However, some industry responses:
• asked for our rules and guidance to state that where a complaint involving non-disclosure
of commission relates to an agreement that is not in the scope of our rules and guidance,
the lender can reject it without further consideration
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• expressed concern that the Financial Ombudsman Service might determine cases about
commission, or s.140A-B more broadly, in markets other than PPI, and that this would
create uncertainty for consumers and lenders
5.15 Some responses from CMCs and consumer bodies argued that the scope of our rules and
guidance should be extended, variously, to include:
• regulated mortgage contracts and regulated home purchase plans to which s.140A-B do
not apply, because these transactions are likely to be the most important and costly that
consumers will undertake and have the highest associated risks in the event of default
• all PPI complaints involving undisclosed commission, including those where a claim could
not be made under s.140A-B, because the principle that consumers should be able to claim
redress where a rm failed to disclose high commission should apply as widely as possible
and it would be unfair to exclude them
5.16 Other responses from CMCs and consumer bodies, however, said they could neither agree
nor disagree currently, as the reach of s.140A-B might be extended by ongoing or future court
decisions, which in turn might lead to changes in our rules’ scope.
Our response
We remain of the view that it would not be appropriate under our consumer
protection objective to widen the application of our proposed rules and guidance
beyond the scope of s.140A-B. Firms were not required by us to disclose
commission to consumers under ICOB/ICOBS and it is clear that in Plevin the
Supreme Court addressed the question of unfairness under s.140A. So aligning
the application with that legislation is most appropriate and proportionate,
given our aim of ensuring fair and consistent PPI complaint handling in light
of Plevin.
Concerning potential future decisions in the courts that might address the
scope of s.140A-B, we will consider the issues and case law on a case by case
basis in light of our statutory objectives and regulatory priorities.
We have not proposed rules and guidance concerning undisclosed commission,
or other matters which may give rise to an unfair relationship, in non-PPI
markets, as we are not currently aware of any evidence of potential relevant
issues with inconsistent complaints handling in markets other than PPI.
We carefully set out what we proposed to include in, and exclude from, our
proposed rules and guidance. If a firm were to receive a complaint about a
matter that was not within this proposed scope, it would need to consider the
complaint under our existing high level (non-PPI specific) complaint handling
rules. This would not mean that the complaint should be automatically rejected
and it would not be appropriate for us to state that or make rules to that effect.
Similarly, if such a complaint was then referred to the Financial Ombudsman
Service, it would need to consider the complaint under its usual fair and
reasonable jurisdiction.
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Regular premium PPI
5.17 Most responses from CMCs and consumer bodies, and some from industry, agreed with our
proposed inclusive approach to PPI types, sales characteristics and business models.
5.18 However, a number of responses from industry argued that Regular Premium PPI (RPPPI) was
very different from the Single Premium PPI (SPPPI) policy that featured in Plevin and involved
much less risk of unfairness and detriment to the consumer. As such, it would be inappropriate
and disproportionate to include complaints about RPPPI within the scope of our proposed rules
and guidance.
5.19 In arguing this difference between RPPPI and SPPPI, these responses said that in their view:
• RPPPI, particularly on revolving credit, is cheaper than SPPPI on loans in terms of price per
£100 of cover.
• RPPPI involves much less of a nancial commitment than SPPPI, as the credit sum(s) protected
and thus the premium(s) are generally much smaller.
• Many RPPPI policies on credit cards provided good protection benets and good value for
their price.
• It is not credible to suggest that disclosure and accounting of the cashows from the
typical credit card PPI price of 69p–89p per £100 would have been of material interest to
consumers at the point of sale or helped them in their purchase decisions – unlike the large
upfront increase in the amount borrowed by Mrs Plevin which her SPPPI purchase caused.
• Revolving credit is a exible and open ended product, where the customer receives
transparent monthly notications and decides each month whether to revolve the balance,
pay down or increase it, cancel the card without penalty, or move to another card provider.
In contrast, the secured loan which Mrs Plevin’s PPI covered put her home at risk, was long
term, and inexible, as most of her costs were irrecoverable if she cancelled (due to the
initial repayments being allocated to interest).
• There was a high degree of competition in the credit card market and customers were more
likely to shop around for a credit card than for secured loans.
• The FSA did not ask rms to stop selling RPPPI in early 2009, when it asked rms to stop
selling SPPPI.
• While non-disclosure of commission on SPPPI has been raised in complaints to rms or
claims in courts, this has not been the case for credit card PPI and other RPPPI.
• It is anyway not clear how a commission disclosure could be made on RPPPI, either in £ or
% terms, as it varies during the life of what is an open-ended agreement.
5.20 Some responses from industry argued that it would be especially inappropriate and
disproportionate to include running-account and restricted-use credit agreements, and the
RPPPI covering these, within the scope of our rules and guidance. In their view, these products:
• have even lower balances and premiums than other RPPPI
• are even less potentially harmful to consumers than other RPPPI
• are even further removed from the nature of the credit agreement and PPI in Plevin
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5.21 These responses also noted that running-account and restricted-use credit agreements had not
been included in the PPI point of sale prohibition imposed by the Competition Commission (CC),
because the CC felt that the small premium sums involved would likely mean that consumers
would not extend their search for these types of credit and PPI elsewhere anyway.
Our response
We remain of the view that there is no sufcient relevant difference between
SPPPI and RPPPI (including running-account and restricted-use credit) to
indicate that Plevin’s logic and our proposed rules and guidance should not
apply to RPPPI.
While the absolute levels of commission payment for RPPPI may often, though
not always, be less than for SPPPI, a RPPPI customer would still have paid
commission and so the proportion of commission would still have generally
been relevant to them. Moreover, neither the lender nor borrower would have
known at the point of sale that the sums borrowed under the rotating or
running-account credit, and thus the PPI premiums, would be small, or remain
so. That would depend on the borrower’s behaviour. Also, low initial borrowing
limits granted by lenders were often raised over time when the borrower’s
repayment history justied this. The approach taken in the Plevin judgment
was that once commission reaches a certain percentage of the premium then
if it is not disclosed it creates a potential unfairness. The judgment does not
refer to quantum or an amount in absolute money terms and we think that this
approach reads across into regular premium policies.
Even if it may generally have been easier for a consumer to end a RPPPI policy
and any related credit relationship than a SPPPI policy and related loan, it is not
clear that this is of any real significance, given the Supreme Court’s focus on
what happened at the point of sale and entry into the relationship.
5.22 Some responses from industry also argued that if we still felt it appropriate to include RPPPI in
scope, we should at least use our discretion and regulatory judgement to restrict the impact
of this inclusion. Specifically, it was suggested variously that our proposed approach should
exclude from consideration:
• those RPPPI policies sold before 6 April 2007 (the start of s.140A), even if the credit
agreement remained in scope of s.140A because it was still in force at 6April 2008
• those RPPPI policies which covered credit agreements that were in scope of s.140A but
‘dormant’ at 6April 2007
23
• those RPPPI premiums and commissions that were paid before 6April 2007, even if the
credit agreement remained in scope of s.140A
5.23 The arguments put forward in favour of these suggested restrictions were that:
23 Where, it was suggested, such dormancy could be defined in terms of the account not being used, or having zero balance, or where
the credit facility could only have been utilised (again) if the lender had provided fresh authorisation for drawdown. Some responses
further suggested that such dormant accounts could reasonably be regarded as de facto ‘completed’ at 6April 2007 and thus as
arguably out of scope of s.140A anyway.
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• Even if such cases formally fall under the transitional provisions in relation to s.140A, the
remedies courts could award under s.140B are only discretionary.
• We should be cautious in exercising this discretion, given that our proposed approach
applies across a broad range of PPI cases, with less regard likely to be given to the individual
facts of each commission complaint, including the date of sale and length of relationship,
than the courts would give.
• Without such restrictions, our approach would redress PPI policies sold years or even
decades ago. This would create a real risk that consumers would be over-compensated,
with, for example, the simple interest element dwarng the amount of commission that
was originally paid.
• It would be unfair, disproportionate, and pay insufcient regard to our regulatory objectives
and the discretion given under s.140B to the courts, to require redress for RPPPI in periods
before the unfair relationship regime existed, when we, as the regulator, did not require
commission disclosure, particularly given the arguments that RPPPI should be distinguished
from the SPPPI in Plevin.
Our response
We do not consider that these suggested restrictions concerning RPPPI focused
on 6 April 2007 can reasonably be inferred from, or viewed as compatible
with, the explicitly retrospective transitional provisions enacted by Parliament in
relation to s.140A.
As noted, whilst not rigidly confining ourselves to Plevin, we are taking it
into account when exercising our regulatory judgement about appropriate
assessment and, where relevant, redress of relevant PPI complaints. We consider
that our proposed purpose of ensuring fair and consistent complaint handling in
this area would not be served if we provide rules and guidance that depart too
far from the approach set out in the Plevin judgment and open up obvious gaps
with potential claims and decisions in the courts. Therefore, we do not consider
that it would be inappropriate or disproportionate to reject these suggested
restrictions on RPPI and to maintain the scope of our rules and guidance as
proposed. Mrs Plevin’s purchase, whilst not RPPPI, took place before 2007.
5.24 Some industry responses further suggested that we should limit the impact of our proposed
approach to RPPPI by aligning it with the Limitation Act 1980 (to which, they argued, claims
based on s.140A-B are subject in court) by introducing a 15 year long-stop. Such provision
would mean that a complaint about undisclosed commission on PPI could be rejected without
consideration of its merits if the complaint was made more than 15 years after the PPI policy
was entered into.
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Our response
The FCA has chosen not to mirror the long stop provisions of the Limitation Act
1980 in its existing complaint handling rules and guidance and we do not see a
need to treat PPI complaints where s.140A-B are relevant any differently.
We also note that the idea of a long-stop more generally was not supported by
the recent Financial Advice Market Review. We have, however, committed to
keep the issue of a long-stop for complaints in general under review.
Alignment with the jurisdiction of the Financial Ombudsman Service
5.25 Some industry responses expressed concern that our proposed rules and guidance would apply
to any complaint involving a credit agreement that fell within the scope of s.140A-B, regardless
of whether the complaint itself fell within the scope of the Financial Ombudsman Service’s
jurisdiction. This was said to have the effect of bringing into the scope of our complaint
handling rules and the Financial Ombudsman Service jurisdiction a large number of firms that
have previously been out of scope.
5.26 In particular, these responses argued that this alleged expansion of scope would impact the
running-account and restricted-use credit sector, and those firms which had sold PPI before
January 2005 but were not in the General Insurance Standards Council or the Financial
Ombudsman Service’s predecessor schemes and did not become regulated insurance
intermediaries after January 2005. This alleged impact, and the additional costs it would imply
for these firms, was argued to be unjustified and disproportionate.
Our response
We did not propose changes to the scope of our DISP rules or the jurisdiction of
the Financial Ombudsman Service. Nor do we consider that our proposals have
any such unintended consequence. The rules and guidance clearly only apply to
‘complaints’ and we have proposed no changes to the definition of that term.
We do not accept that our consultation paper implied, or could be read as
suggesting, otherwise. Firms, as now, when they receive complaints will need
to consider whether such complaints are ‘complaints’ for the purposes of DISP.
This requires consideration of whether the complaint relates to an activity that
falls within the jurisdiction of the Financial Ombudsman Service. Matters which,
if complained about now, would be outside the scope of our DISP rules or the
jurisdiction of the Financial Ombudsman Service, will remain outside, even if we
make our proposed rules and guidance on complaint handling in light of Plevin.
Conclusion
5.27 Overall, therefore, we consider that there is no reason to change the scope of our proposed
rules and guidance on PPI complaints and Plevin.
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The two-step approach: relationship with existing rules and guidance in DISP App 3
5.28 In paragraphs 5.23–5.38 of CP15/39, we proposed rules and guidance that would introduce a
new second step into the existing rules and guidance in DISP App 3 concerning PPI complaints.
This would mean that, where the credit agreement covered by the PPI is in the scope of
s.140A-B, then:
• A lender would not have to assess a PPI complaint against the proposed new rules and
guidance (‘Step 2’) if it sold the PPI and concludes, under the existing rules and guidance
(‘Step 1’), that the complaint should be upheld because the PPI was mis-sold and paid full
redress
24
• A lender should assess a PPI complaint under the proposed Step 2 if:
–
it sold the PPI and decides under Step 1 that it would reject the complaint because the
PPI was not mis-sold, or uphold it but pay only ‘alternative redress’;
25
or
–
it did not sell the PPI, and so cannot decide whether it was mis-sold under Step 1
• A rm that sold the PPI but did not provide the credit agreement the PPI covered (i.e. was
not the lender) does not have to assess the complaint at Step 2
5.29 We asked:
Q8: Do you agree with our proposed structuring of the
new rules and guidance concerning Plevin as a separate
‘second step’ within our existing PPI complaint handling
rules and guidance?
The logic of the two step structure
5.30 Most responses from industry broadly agreed with the logic of the proposed two step structure
(although some concerns were expressed about how it might work in practice where the lender
and seller were different firms – see below).
5.31 Some responses from consumer bodies also broadly agreed with the logic of our proposed
two step structure but said that firms should be required to consider whether there was
non-disclosure of commission (ie engage Step 2) regardless of whether this was raised by
the consumer in the complaint. This is because it would not be reasonable, or appropriate
consumer protection, to expect consumers to realise that they had grounds for complaint
about something they were not told about at point of sale.
24 That is, the full return to the customer of their premium plus the historic interest paid on that premium (where relevant), plus simple
annual interest on those sums.
25
‘Alternative redress’ refers to the ‘Alternative approach to redress: single premium policies’ set out at 3.7.7E-3.7.15E in our current
DISP App 3 rules and guidance.
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Our response
We note that the proposed rules and guidance, together with our existing
rules and guidance,
26
would have the effect of generally expecting lenders to
consider the issue of undisclosed commission at Step 2 when they assess PPI
complaints within the scope of s.140A-B and not fully redressed as mis-sold,
even if this issue is not expressly raised by the complainant.
5.32 Some of these responses from consumer bodies also said that:
• the two step structure may incentivise rms that are both seller and lender to ‘game’ the
process by unfairly rejecting a complaint at Step 1 but offering Step 2 redress instead, in the
hope the complainant settles for this lesser sum
• complainants may not understand that the redress sums potentially available at Step 2 are
much smaller than those at Step 1
• we should closely monitor rms’ operation of the two step structure in practice and require
them to include in any Step 2 redress offer a clear and fair explanation that:
–
the complainant still has the right to refer a Step 1 rejection to the Financial Ombudsman
Service if they are unhappy with the reasons for that rejection
–
any Step 1 redress sum, were the referred case to be upheld by the Financial Ombudsman
Service, might well be larger than the Step 2 offer
Our response
As noted in Chapter 3, we will have robust supervisory engagement with rms
to ensure that they handle complaints fairly in the period before the proposed
deadline falls.
We do not intend to add rules and guidance prescribing what should be said
in Step 2 offers. We think this would be too granular an intervention and that
we can reasonably rely on the existing rules and guidance which require final
responses to complainants, including any offers of redress, to be clear, fair and
not misleading.
5.33 Some responses from CMCs and consumer bodies disagreed with our proposed two step
approach. They argued that we were acting unreasonably and contrary to the Plevin judgment
in not accepting that a failure to disclose high commission generally caused a mis-sale, and in
separating undisclosed commission from the assessment of mis-selling.
5.34 Conversely, some industry responses disagreed with our proposed view (in paragraph 5.69 of
CP15/39) that there could occasionally be circumstances where the fact (identified at Step 2)
of a high undisclosed commission payment would, when considered in the round alongside
Step 1, shift a ‘marginal non mis-sale’ (assessed at Step 1) to a ‘mis-sale’. These responses
26 We expect firms to consider evidence that is uncovered during the assessment of the complaint as if it were part of the complaint
and to take into account information they already hold about the sale and consider other issues that may be relevant to the sale
which the firm has identified through other means. See the provisions at DISP App 3.2.1G to 3.2.6G.
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emphasised that they saw Step 1 and Step 2 as entirely separate and independent tests that
could not and should not influence each other. They also noted that, anyway, such ‘in the
round’ consideration across the two steps could not be done where the seller and lender were
different firms.
Our response
Plevin deals with the specic question of whether an unfair relationship
between lender and borrower was created by undisclosed high commission
on the PPI. This question is different from, and narrower than, the principal
question behind our existing rules and guidance for rms, which is: did the
conduct of the rm that sold the PPI fall so short, at point of sale, of what
we would expect under our Principles and ICOB(S) rules, that it made the sale
substantially awed? We remain of the view that the two step approach reects
this difference appropriately and fairly for complainants and rms. An alternative
approach which merged considerations about undisclosed commission into the
existing rules and guidance about mis-selling to create a single test would not
be appropriate because:
• we do not consider the non-disclosure of commission in PPI sales to have
been a breach of our Principles or ICOB(S) rules (or CONC rules before 1 April
2014), whereas we do consider the various sales failings set out in the existing
rules and guidance to be so
• we would, anyway, have to leave scope for a PPI complaint where undisclosed
commission may be relevant to be assessed by a lender that did not sell the
PPI and could not assess if it was mis-sold under our existing rules
However, we do not agree that what we said in paragraph 5.69 of CP15/39
was inappropriate. Our comment was simply intended as one example of when
a firm might decide that it needed to award more redress than under our
proposed standard Step 2 approach to redress. We did not seek to create any
standard approach to ‘marginal mis-sales’ and expressly stated that such cases
would be few and far between. We also expressly stated that such a scenario
was only potentially relevant where the same firm was both seller and lender.
The practical workings of the two step structure
5.35 Some responses from industry, though broadly agreeing with our approach, had concerns
about how it would work in practice if the seller and lender were different firms, or if the
Financial Ombudsman Service or FSCS was also involved. Specifically, they were concerned that
poor communication between the parties might lead to over-lapping remedies at Step 1 and 2
and thus to over-payment of redress to the complainant.
5.36 To mitigate this perceived risk and assist the efficiency of the process, some responses from
industry suggested that we should require a lender who received a complaint about a policy
it did not sell to forward that complaint to the seller first, who would then perform Step 1. If
the seller did not fully redress the complaint as mis-sold, it would forward it back to the lender,
who only then would perform Step 2.
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5.37 Some responses from CMCs and consumer bodies also suggested this ‘Step 1 first’ approach,
because they felt that it would ensure that the complainant gets the most serious matter – the
potential mis-sale – considered first.
5.38 Conversely, however, some industry responses argued that it was Step 2 that should always be
done first and that sellers should only have to carry out Step 1 after the lender had assessed
and redressed any unfair relationship under s.140A identified at Step 2.
5.39 This ‘Step 2 first’ approach was also suggested by some consumer bodies, including for firms that
were both lender and seller. Their logic was that the undisclosed commission aspect was more
straightforward to assess than the potential mis-selling, so the firm could give complainants
quicker decisions and potential redress at Step 2, before moving on to Step 1 and, if necessary,
paying the additional redress any identified mis-sale would require.
5.40 Some industry responses said there would be difficulties with the two step structure if either the
seller or lender is not caught, for the sale involved in the complaint, by our existing complaints
rules and jurisdiction. This is because it would not then be subject to our complaint forwarding
rules, which we had said in CP15/39 would help the two step structure work effectively.
5.41 More broadly, to help the fairness and efficiency of the proposed two stage structure, some
responses from industry proposed that we should also add requirements:
• for rms (particularly sellers), and for the FSCS and the Financial Ombudsman Service,
to provide details of redress paid previously when requested to do so by other rms
(particularly lenders)
• for consumers to provide details, when complaining, of any previous redress received in
relation to the relevant PPI policy
Our response
We remain of the view that the two-step approach is proportionate, in what it
requires of rms, and fair, as it limits the risk that a complainant could recover
two sums of redress incorporating both the full return of premium (for mis-
selling) and some part of that premium (for undisclosed high commission).
We accept that for complaints about the small minority of PPI sales where the
seller and lender were different rms, avoiding potential ‘double dipping’ by
consumers, whether inadvertent or otherwise, is likely in practice to need some
communication between the rms.
We do not, however, intend to add any rules and guidance that prescribe which
step a rm should deal with rst, or how and when they should forward it to
another rm to carry out the other step. This is because:
• We think this would be too granular an intervention. We believe we can
safely rely on the existing high level complaints forwarding rules and on
rms’ common sense and professionalism to communicate appropriately
among themselves to avoid excessive recovery by the complainant.
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• The ‘Step 2 rst’ idea rests on the mistaken belief that Plevin redress would
or should be automatic – which is not what Plevin decided and not what we
have proposed in our rules and guidance.
• The ‘Step 1 rst’ idea is closer to our own thinking that it will often be
preferable for a rm that both sold and lent to carry out Step 1 rst, as this
is likely to result in the maximum redress at the earliest stage, but it is not
something we want to insist on. This is because we feel it should remain
open to consumers to complain about Plevin rst if they wish to, which may
be better for them if, for example, the seller of the PPI cannot be identied
or is no longer trading or is unresponsive.
We do not think imposing requirements on the Financial Ombudsman Service
and FSCS to share information with rms concerning prior redress payments
would be appropriate, as their ability to do so is likely to be limited by relevant
condentiality legislation in any event.
We do not regulate consumers and so cannot impose obligations on them to
disclose any previous redress received.
It is correct to say that a firm whose PPI or credit sales are not within the scope
of DISP will not have any obligation to forward the complaint to another firm.
However, we would hope that such a firm would choose to do this to assist the
consumer, or would at least let the consumer know if they were not intending
to do this.
5.42 Lastly, some industry responses argued that Step 2 should not apply to the lender:
• where the seller was a broker who knew the relevant commissions payable out of the
premium (including those to the lender) but did not disclose this to the customer; it should
then be this broker who ought to consider the complaint at Step 2 as well as at Step 1
• in relation to any broker sales, as the lender would not have received any commission from
these sales and would not have had knowledge of the commission arrangements in place
Our response
We have considered the circumstances in which parties other than the lender,
e.g. the insurance broker, loan broker or the insurer, also knew the level of both
their own and the lender’s commissions but did not tell the consumer. We do
not consider that this circumstance requires any change to the proposed two
step approach. Specically, we do not consider that it would be appropriate to
carve lenders out from Step 2 where a broker made the sale featuring in the
complaint or where that broker was aware of the commission arrangements
but did not disclose them to the consumer.
In our view, the Supreme Court judgment in Plevin focuses on the lender and
made clear that, for the purposes of unfair relationships under s.140A-B at
least, it is the lender who is responsible for the failure to disclose the commission
to the consumer (even if it received none itself), not any other party to the
transaction (even if that party did receive commission).
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However, as we explain below, the presumption of unfairness may be rebutted
in circumstances where the lender did not itself know, and could not reasonably
be expected to have known, the level of commission.
Conclusion
5.43 Overall, therefore, we consider that there is no reason to change the proposed two step
structure in our proposed rules and guidance on PPI complaints and Plevin.
5.44 However, for the avoidance of doubt, we do propose an amendment to the draft provisions to
expressly state that a firm that was the lender (under the CCA), but which did not sell the PPI
policy, should only consider Step 2 and not assess whether the PPI was mis-sold (see DISP App
3.1.1G(3) as amended).
Commission and prot share
5.45 At paragraphs 5.39-5.48 of CP15/39, we explained that under our proposed rules and
guidance, firms would need to consider at Step 2 whether they disclosed to the complainant
in advance of the PPI contract being entered into the commission, or an explanation of what
the commission was likely to be in the future, or the likely range in which it would fall or how
it would be calculated.
5.46 We proposed, for the purposes of such PPI complaint handling only, to define ‘commission’ as:
‘the proportion of the total amount paid in respect of a payment protection contract that was
not due to be passed to and retained by the insurer’.
5.47 This proposed definition was intended to be broad, simple and applicable regardless of the
business or accounting arrangements between lender, broker and insurer (including where two
or all of these functions were carried out within the same group), and to not allow for ‘costs’
(including profit margin) to be deducted, whether reasonable or not.
5.48 This proposed definition meant that profit share was not expressly included in our proposed
approaches to assessing unfairness or redress.
5.49 We asked:
Q9: Do you agree with our proposed denition of
‘commission’ for the purposes of handling PPI complaints
in light of Plevin?
Costs, prot and value
5.50 Most responses from CMCs and consumer bodies agreed, emphasising the importance of
making the definition as simple and workable as possible for complaint handling. Some added
that the important consideration for a consumer was the price of the product they were
purchasing and its potential value for money, so it was right that all sums and costs which
made up that price should be taken into account.
5.51 Some responses from industry also agreed, but suggested that our definition should explicitly
state that commission should be assessed as a percentage of the total amount paid including
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insurance premium tax (IPT), not as a percentage of gross written premium, which is generally
net of IPT.
5.52 However, other responses from industry argued that firms vary considerably in their business
models and therefore their cost structures and allocations. They felt that to avoid arbitrary
differences in ‘commission’ across these different models, we should amend our definition to
allow various costs to be deducted. This would make it more like ‘actual commission’ or ‘net
margin’. The costs they variously suggested for deduction included:
• payments to the lender for insurance administrative services performed for the insurer
• the lender’s own administration costs
• the costs of design, marketing, fullment and similar activities
• the cost of ‘pricing for risk’ to maintain the PPI cover even if the customer fails to pay their
premiums for a period
• the interest cost of nancing the upfront premium for some types of SPPPI
• the overall cost of distribution
• the 16% gure for reasonable distribution costs and prot margin estimated by the CC in
its report on PPI
5.53 One response argued that, unlike the lender in Plevin, it had done everything concerning the
PPI apart from underwrite it, including designing and administering it, so it was incorrect to see
its income as ‘commission’ at all.
Our response
We remain of the view that there are no compelling reasons in the light of the
Plevin judgment why such an adjustment downwards of ‘commission’ in light
of ‘costs’ (whether or not they were reasonably incurred) would be necessary or
appropriate. In particular, we do not consider that the consumer’s view of the
potential value for money of the policy would generally be affected by knowing
the detail of the lender’s or seller’s costs or prot margins.
We do not consider it necessary to amend the proposed denition to refer to
IPT explicitly. We consider that, as drafted, it already excludes sums passed by
the lender to another party to pay IPT.
However, for the avoidance of doubt, here is a relevant worked example
illustrating our proposed denition (which assumes there was no mis-sale):
• PPI single premium of £100 plus £5 IPT - customer pays £105 to distributor.
• Of this £105, the distributor, who is also the lender, retains £50 as
commission.
• The balance of £55 (including the £5 IPT) is passed to the insurer. The lender
anticipates getting £10 of this £55 back in due course as prot share.
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• In response to a subsequent complaint, the rm considers at Step 2 the
implications of its not disclosing at the time of sale commission and
anticipated prot share of 57% – this being £60 of £105 (ie what the
consumer paid gross of IPT) - not 60% (£60 of £100, ie net of IPT).
5.54 In contrast, some responses from CMCs and consumer bodies argued that our approach was
too narrow. They felt that the unfair relationship stems not just from what the distributor
earns as commission but from the excessive cost the consumer paid for poor value policies
full of exclusions and limitations. So the ratio of claims to premiums, on its own or in a suite
of other indicators (as we discussed in DP15/4
27
), would be a better measure of value and the
fairness of the relationship, and thus a better focus for our proposed rules and guidance than
‘commission’ only.
Our response
We remain of the view that, as these wider aspects of value for money were
not discussed in Plevin, it is not necessary or appropriate for us to include them
in our proposed approach, given our aim is simply to ensure fair and consistent
handling of PPI complaints in light of Plevin.
It would, however, remain open to consumers to complain about these and
other aspects not covered in our proposed rules and guidance. In that event,
firms would still need to consider the complaint fairly. They would need to do this
at Step 1 if the firm was the seller, and/or within the framework of our existing
higher level (non-PPI specific) complaint rules. Similarly, if such complaint was
referred to the Financial Ombudsman Service, it would need to consider the
complaint in light of its fair and reasonable jurisdiction in the usual way.
Prot share
5.55 Industry responses agreed that profit share sums should not be included in our proposed
approach, because in their view:
• they were not covered in Plevin
• they are not guaranteed but typically depend on many factors, such as the variable costs
incurred by the insurer and the level of claims received, which cannot be known at the point
of sale
• the payments cannot usually be linked to a specic customer because they are based on the
annual surplus or decit from the yearly sales of the product
• they vary over time, and a prot in one year can be followed by a loss the next
• at the time of each PPI sale, rms would not know the prot share they were likely to receive
• they reect commercial arrangements between the rms involved which do not affect the
price paid by the consumer
27 Developing General Insurance Add-ons Market Study – Remedies: Value Measures:
https://www.fca.org.uk/your-fca/documents/discussion-papers/dp15-04. See also the subsequent feedback statement 16/01:
http://www.fca.org.uk/your-fca/documents/feedback-statements/fs16-01
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• prot share arrangements vary widely across the industry, so any attempt to include them
in our approach would lead to inconsistent outcomes
5.56 Some industry responses noted the judge’s comments in Brookman v Welcome Financial
Services Ltd (Brookman) about the potential significance of profit share in assessing the fairness
of the relationship in that case. HHJ Keyser QC was struck that Welcome’s upfront commission
was 45% of the premium, but it also had ‘profit share’ claims on any excess sums remaining
from the further 24% paid to the insurer to meet claims and 20% paid to the insurer to meet
customer cancellation rebates.
5.57 These industry responses argued that we should not regard Brookman as a precedent or
change our approach in light of it because, in their view:
• It was a county court judgment and not binding.
• It appeared mainly to concern a particular and unusual type of prot share arrangement that:
–
was more focused on cancellation rebates
–
apparently reected an advance payment of prot that was more certain than the
usual claims based kind, and arguably fell already within our proposed denition of
‘commission’
• It did not appear that HHJ Keyser QC took into account prot share when calculating a
tipping point or redress, but instead took a more general approach that the prot share,
together with other arrangements, made the agreement unfair.
5.58 However, some responses from consumer bodies and CMCs said the FCA should include profit
share as part of a broader approach to the definition of ‘commission’. They considered that
this would be fairer and better reflect the economic reality of the situation and also the court’s
thinking in Brookman.
Our response
Judgment in Brookman was handed down on 6November 2015, just before
we published CP15/39. It led us to conduct further work on prot share
arrangements, including gathering data and other information from a sample
of rms, as well as considering the feedback to CP15/39 that we received on
this point.
As a result of this work, we propose modifying our proposed rules and guidance
to include prot share because:
• Although prot 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 rms could reasonably foresee that
they would receive material prot share sums under their agreements or
arrangements with insurers.
• Prot share sums were larger, relative to upfront commission, than we had
thought. In CP15/39, at paragraph 5.54, we had described the average
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commission on PPI for the 12 largest distributors in 2002-2006 as 67%
according to the CC’s gures, when in fact that gure included prot
share.
28
We now estimate, based on information we received during the
consultation, that, typically, commission accounted for less than three
quarters of distributors’ revenue from PPI, and prot share over a quarter.
That is, many rms on average received over £1 of prot share per £3 of
commission.
29
• We think that disclosure of prot share would generally have been likely to
impact the consumer’s thinking alongside any commission or, in some cases,
alone. As such, including prot share would run with the grain of Plevin and
be fairer to the consumer.
• Including prot share reduces the likelihood of large arbitrary differences in
complaint outcomes at Step 2 between rms that could reasonably foresee
receiving the same broad economic benet from PPI policies but via different
proportions of commission and prot share.
Specically, we propose to modify our proposed rules and guidance to provide
for a rm to:
• Consider whether it did not disclose in advance of the sale of the PPI policy
not only the commission but also any anticipated prot share (see DISP App
3.3A.2E). We propose to dene this as ‘a reasonable estimate of the amount
that it was reasonably foreseeable at the time of the sale would be payable
in the future in respect of the payment protection contract under prot
share arrangements’.
• Presume that a failure to disclose the anticipated prot share plus the
commission gave rise to an unfair relationship under s.140A if together
these were more than 50% of the total amount paid in respect of the PPI
policy (or presume that the failure did not give rise to an unfair relationship
if, together, these were 50% or less) (see DISP App 3.3A.4E).
• Include actual prot share when calculating redress under our proposed
approach. That is, pay redress equal to: the total commission actually paid in
respect of the PPI policy plus an amount representing the actual value of any
payment(s) made in respect of the PPI policy under prot share agreements;
minus 50% of the total amount paid in respect of the PPI policy (see DISP
App 3.7A.3E).
We envisage that, when handling a PPI complaint at Step 2, rms may need in
broad terms (though there may well be other reasonable approaches) to:
28 See paragraphs 21-25 in Appendix 4.4 of UK Competition Commission report “Market investigation into payment protection
insurance” 29 January 2009. Available online at http://webarchive.nationalarchives.gov.uk/20140402141250/http://www.
competition-commission.org.uk/assets/competitioncommission/docs/pdf/non-inquiry/rep_pub/reports/2009/fulltext/542_4_4.pdf. The
CC noted that one distributor had not included profit share in the income figures it provided, and that this omission represented a
potential uplift to the percentage of income as a proportion of GWP and thus to the CC’s profitability estimates.
29
This kind of ratio will, however, be affected by the firm or group’s arrangements. The CC noted that some distributors are vertically
integrated and that in these circumstances the contract between the underwriter and distributor could not be assumed to be on an
arm’s-length basis. For consistency purposes, one significant vertically-integrated provider gave the CC group income figures for PPI
on an aggregate basis rather than distributor income, saying this was more meaningful given its internal commission arrangements.
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• Identify, recreate or infer an appropriate remuneration model for that
type of PPI policy sold in that particular year: for example, by reference to
the relevant agreement or other arrangement with the insurer covering
the relevant period, or on the basis of reasonable assumptions about the
model based on agreements or arrangements with, or actual sums received
from, the insurer (or other parties where relevant) for the same products in
other years.
• Apply this remuneration model to the PPI policy and its premium(s) to
determine the prot share that was anticipated in respect of it at the time
of sale.
We recognise that this proposed inclusion of anticipated prot share when
assessing evidence at Step 2 implies choices and challenges for rms. We would
be particularly interested in views on:
• Whether the main variable in establishing anticipated prot share would be
the expected loss ratio for each type of PPI at the beginning of the relevant
year. This will probably be heavily inuenced by recent loss experience.
• Whether, when establishing the expected loss ratio, allowance should be
made for uncertainty, and if so how much. For example, given a major
change in the economy could have affected the subsequent loss ratio,
should an element of buffer be included in the expected loss ratio to reect
this uncertainty?
• Whether rms’ prot share assumptions may potentially be more difcult
and approximate for some types of PPI than others: for example, where the
expected loss ratio for products sold in a particular year is affected by the
length of the policy and type of premium payment (one-off or monthly).
• What policy duration should be used by rms when assessing their
anticipated prot share for a rolling monthly policy with monthly payments.
• How a rm should apply the remuneration model to the policy featuring
in the complaint where the agreement or arrangements with the insurer
allowed it to offset prior year losses for that product (or from others) from
the rm’s prot share entitlement.
When calculating redress at Step 2, we envisage that rms may need in broad
terms to allocate an appropriate part of the actual prot share from a relevant
book of policies (for example, policies of the same type sold in the same year)
to the particular policy that is due redress.
The method rms adopt to make this allocation may need to vary depending
on the detail of the data the insurers gave them about these prot share
arrangements and payments. We understand that for some prot share
agreements and arrangements, insurers completed prot share calculations
per product per underwriting year on an annual basis. Where details of these
calculations were provided, rms are likely to be able to identify all prot shares
linked to a specic product group sold in a particular year. This may be a good
starting point from which to determine an allocation of actual prot share to
a particular policy that is due redress at Step 2. However, where less detailed
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information was provided by the insurer, we would still expect rms to calculate
reasonable proxies for the allocation of prot share to the PPI policy.
We recognise that including actual prot share when assessing redress at Step
2 implies various choices and challenges for rms. We would be particularly
interested in views on:
• Whether the prot share payments were accompanied by information from
the insurer allocating the payment to specic groups of policies, for example,
policies sold in particular years for a particular product type.
• How to allocate prot share payments to individual policies. If a rm can
establish the prot share payments for a specic group of policies, for
example product A sold in year 1, it would need to establish a method
for allocating this amongst those policies, including those due redress. This
could be complicated where, for example, a product type is made up of
single payment policies with mixed duration terms (e.g. 1 to 5 years) and
the protability of the shorter term policies was higher than the longer
term policies.
• How to treat prot share linked to monthly premium policies. As these
policies age, they may be allocated to new commercial contracts with
different prot share terms. For example, in months 1-12 the policy may
be subject to prot share agreement A which will be paid in year 2. For
months 13–24 the policy may be subject to prot share agreement B which
will be paid in year 3. Firms would need to recognise that the prot share
originating from the policy may be included within various different prot
share payments and arrangements (but see also 5.103 to 5.104 below).
Though we have focused above on claims based prot share arrangements, we
consider that the same considerations apply to other prot share arrangements,
for example as in Brookman, where the variable factor was the value of rebates
paid, rather than claims. Excluding rebate based prot share arrangements
would create large arbitrary differences in complaint outcomes between rms
that paid rebates themselves out of commission, and those that sent sums to
insurers to cover rebates but entered into prot share arrangements about
those sums.
If, following this further consultation, we make these amended rules and
guidance and include prot share in our approach, we would be open to
discussion with rms about their practical proposals for applying our approach
to their particular arrangements.
Q19: Do you agree with our proposed modications of
incorporating anticipated prot share sums within our
approach to assessing fairness and actual prot share
sums within our approach to redress? Do you perceive
any particular practical or operational difculties with
this modied approach?
30
30 We run the numbering of the questions in this further consultation on from those in CP15/39.
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Considering evidence at Step 2 – the tipping point and presumption of unfairness
5.59 In paragraphs 5.49 – 5.58 of CP 15/39, we proposed that if a firm did not make a disclosure
of commission at the point of sale, and is not aware that anyone else did so at that time, then
it should:
• take steps to satisfy itself that this did not give rise to an unfair relationship under s.140A,
taking all relevant matters into account, but
• presume that the failure to disclose did give rise to an unfair relationship if the commission
was, or had the potential to be, 50% or more, or
• presume that the failure to disclose did not give rise to an unfair relationship if the
commission was less than 50%, or did not have the potential to be 50% or more
5.60 However, our proposed rules and guidance also provided that these presumptions could be
rebutted (which we discuss in more detail below).
5.61 We asked:
Q10: Do you agree with our proposal of a single 50%
commission ‘tipping point’ at which rms should
presume, for the purposes of handling PPI complaints,
that the failure to disclose commission gave rise to an
unfair relationship under s.140A?
The level of the tipping point
5.62 Most responses from industry agreed that there should be a single tipping point and that
50% was a reasonable figure for this purpose. Some added that this favoured consumers but
enabled a practical approach to be taken to complaint handling.
5.63 However, some responses from industry argued that:
• There were good grounds for a tipping point of 60%, because it is:
–
below the ‘two thirds’ referred to by Lord Sumption
–
consistent with his view that 71.8% was ‘a long way beyond’ the tipping point
–
a proportionate gure which is not right at the bottom of the 50% to 80% range which
(these responses argued) he had established as the range of commission in question
• There should at least be a higher tipping point, of 60% or more, for:
–
RPPPI, for the kinds of reasons discussed above and because rms took far longer to
cover their distribution costs from a RPPPI policy, if they did so at all
–
RPPPI on running-account and restricted-use credit, which, it was argued, have even
smaller typical balances and premiums than credit cards but similar distribution costs
• The proposed 50% tipping point did not appear to take into account broker sales, where
total overheads are higher than for direct sales, because the broker distribution process may
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involve several different parties, each with a role to play and each with overheads that need
to be covered.
5.64 Some responses from industry argued that there should be a whole variety of tipping points, or
none specified at all, with a greater emphasis put on flexibility instead. They felt this approach
would better reflect the fact that:
• Distribution and servicing in the insurance market uses a multitude of models. So one
specied ‘tipping point’ is unlikely to be a fair measure in every scenario. Instead, tipping
points need to take account of genuine work transfer costs incurred by administrator/
distributors: for example, one rm may perform activities that justify their commission level,
another might do very little.
• The actual sum a distributor received from a sale would depend on the size of the insurance
premium and using a percentage as a threshold makes no allowance for this: one rm could
receive a large excessive sum from a sale that was under 50%, while another rm could get
a reasonable sum that was over 50%.
• Some rms did relatively little PPI business but had xed costs to cover.
Our response
We do not agree that there are good grounds for a higher tipping point, for
example of 60%. We consider that Lord Sumption’s reference to ‘two thirds’
was a generalised reference to the 71.8% Mrs Plevin paid, not a suggestion
of a 66% tipping point or a remark that would otherwise imply 60% was a
reasonable choice. In our view, a 60% tipping point would not t with his view
that 71.8% was ‘a long way beyond’ the tipping point.
The arguments that RPPPI generally, or running-account credit in particular,
should have higher tipping points than SPPPI, or that there should be many
tipping points or none, merely restate the earlier arguments, which we
reject, that our proposed approach should make allowance for differences
in distribution costs and lenders’ activities. Again, we consider that, viewed
from the perspective of the approach set out in Plevin, there are no relevant
differences between SPPPI and RPPPI, including running-account credit, that
warrant different tipping points. We remain of this view even if the actual
undisclosed commission was small in money terms.
We also note, as we said in CP15/39, that the proposed 50% tipping point gives
significant headroom above the 16% identified by the CC report as reasonable
distribution costs and profit for PPI, including RPPPI.
5.65 All responses from CMCs and consumer bodies said the proposed 50% as much too high and
unfair to consumers because:
• It did not plausibly reect Lord Sumption’s view that 71.8% was ‘a long way beyond’ the
tipping point.
• We implausibly assumed that most consumers would think 50% was a reasonable level of
commission, or that levels of ‘only’ 30% or 40% would not have had any impact on most
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consumers’ thinking at point of sale had they been told. Our research in CP15/39 had not
shown this.
• We seemed to have started from a position of assessing the actual average in what we
acknowledge to have been a deeply uncompetitive market, rather than making a common
sense assessment of fairness and reasonableness.
• It would leave many complainants with little or no redress and unfairly allow rms to retain
too much of their inated and undisclosed commission.
• We had ignored the experience of CMCs that courts are ‘regularly nding’ that 45%
commission is unfair.
• It would lead to worse outcomes than consumers could obtain in court. This would cause
high volumes of claims to the courts and undermine our stated aim of achieving certainty
and consistent complaint handling in light of Plevin.
• It stood in conspicuous contrast to the CMR’s recent proposal to cap CMC fees for nancial
services complaints at just 15%.
5.66 Alternatives suggested in responses from CMCs and consumer bodies as fairer and more
plausible included, variously, 16%, 20%, 25% and 30%.
5.67 Many of these responses also argued that our proposal of 50% was not only too high but
arbitrary and unsupported by any arguments or facts. These responses suggested a number
of matters which they felt we ought to have taken into account before setting a tipping point:
• research to establish how much a typical consumer would typically think is reasonable for a
commission payment and the level above which they would typically question the value for
money of the product and whether they wanted to buy it at all
• analysis of how many policies were sold, by which rms, at what level of commission, and
thus the impact of choosing 50% or a different tipping point
• the nature of the service provided to the customer, the cost of the product, and the total
amount (in cash terms) that they paid in commission
• the purpose of the commission itself and whether it reected reasonable costs and prot
margins incurred by the rm(s) involved
• the variance of distribution costs, including whether there were signicant numbers of rms
whose costs were justiably higher than the 16% (in the CC Report) and close to 50%
• the fact that lenders that sold PPI themselves also earned interest on the premium and
commission, further exacerbating the true cost of the ‘commission’ element to the consumer
Our response
We remain of the view that basing our proposed approach around a single
tipping point of 50% is fair and appropriate and not remote from the approach
the courts would take. Our proposed approach already allows for exibility
around the tipping point, including allowing that in some circumstances
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undisclosed commission of less than 50% may have created an unfair
relationship in particular cases.
Adopting a 50% tipping point is not the same as saying that most or all
consumers would think 50% was a reasonable level. Rather, undisclosed
commission of 50% is the level at which we think it can be reasonably presumed
(albeit rebuttably) that an unfair relationship was created.
There is an important conceptual distinction between commission being so
high that it makes the whole relationship between lender and debtor unfair
if not disclosed, and being too high economically in relation to efciently
incurred costs in a competitive market. We are concerned with the former, as
this was the focus in Plevin, not the latter. We are not trying to regulate prices
retrospectively or to redress economic detriment caused by high prices in an
uncompetitive market.
We consider that the level of the tipping point in the context of our proposed
approach is a matter of regulatory judgement. We note that Lord Sumption
indicated in Plevin that the question of where the tipping point falls is a matter
of ‘forensic judgement’; in other words, is a matter for a judge’s evaluation. We
do not think that further information on consumer behaviour and preferences,
or on rms’ costs, is necessary for seeking to justify the proposed 50% tipping
point or identifying potential alternatives.
We are aware of some findings in the county courts of unfair relationships in
cases where commission was 45%. We note that, firstly, this figure is not far
from our proposed 50%, and secondly, that there were other considerations in
those cases, including facts indicating mis-selling had taken place, which would
be considered under Step 1 in our approach. So we do not see cause in these
cases to change our proposed 50%.
Conclusion
5.68 Overall, therefore, we consider that there is no reason to change the proposed 50% tipping
point in our proposed rules and guidance on PPI complaints and Plevin.
5.69 However, we do propose to amend the tipping point presumptions slightly by changing ‘50%
or more’ to ‘more than 50%’ (see DISP App 3.3A.4E(1)) and ‘less than 50%’ to ‘50% or less’
(see DISP App 3.3A.4E(2)). This removes the possibility of an unfair relationship being presumed
because commission was exactly 50%, but no redress being due (as our proposed approach to
redress at Step 2 is based on commission minus 50%), which could confuse a complainant and
be hard for a firm to explain.
Considering evidence at Step 2 – factors that may rebut the presumption
5.70 At paragraphs 5.60 – 5.61 of CP15/39, we explained that the proposed rules and guidance
included examples of factors which, respectively, could support the rebuttal of the presumption
of an unfair relationship if commission was, or had the potential to be, 50% or more, or the
rebuttal of the presumption that there was no unfair relationship if commission was less than
50%.
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5.71 We asked:
Q11: Do you agree with our proposed examples of
circumstances in which the presumptions might
reasonably be rebutted? Are there other such
circumstances which could usefully be specied as
examples?
General logic of rebuttal
5.72 Some industry responses broadly agreed with our proposed approach, but also expressed
concerns that:
• rms might take differing approaches to applying the examples and rebutting
the presumptions
• CMCs might ‘game’ the examples by framing complaints to appeal to them: for example,
by suggesting that the non-disclosure of commission of 45% was critical to a complainant’s
decision making
5.73 These responses therefore suggested that:
• we needed to dene more narrowly any such rebuttal circumstances and give detailed
guidance on when they could apply and what rms should consider when assessing this
• we should make clear in our rules that complainants citing these circumstances would need
to provide credible evidence of them
5.74 Other responses from industry went further, arguing that to ensure certainty and consistency it
would be better not to allow any rebuttals of the presumptions at all.
5.75 Most responses from CMCs and consumer bodies:
• Agreed it was appropriate that rms should nd a relationship unfair in certain circumstances
even if the commission was below 50%. However, some felt the examples were limited and
should also cover other circumstances that were more typical of PPI consumers.
• Expressed concern that rms may exploit the other rebuttal circumstances as ‘loopholes’ to
unfairly reject complaints where commission was above 50%.These responses argued that
we needed to dene the rebuttal circumstances more narrowly and monitor closely how
rms applied them.
Our response
We remain of the view that it is appropriate and important to preserve exibility
around the proposed tipping point to reect the nature of s.140A. The nature
of an assessment of whether a relationship is unfair is broad, and we need
to reect this, while providing for certainty and consistency in complaint
handling. We do this by providing presumptions that an unfair relationship
arises or does not arise in certain circumstances but that these can be rebutted
in some circumstances. We also remain of the view that it is helpful to rms and
consumers to provide specic examples of such circumstances.
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Generally, we do not agree that we should add detailed prescription to such
examples, as this would work against their intended purpose of providing
appropriate flexibility. However, we consider below the arguments for amending
the individual examples.
Where disclosure would have made no difference whatsoever to the customer
5.76 Among responses from industry:
• Some expressed concern that there could be signicant variability in rms’ views of when
disclosure would have made no difference whatsoever to the customer’s judgement
concerning value, so clearer guidance was needed.
• Some suggested that one scenario where this rebuttal should apply was where the product
cost less than £9 per £100 of cover, a reference price the FSA had introduced in Policy
Statement 10/12 (August 2010).
• Some suggested that this rebuttal should apply where the nature of the credit product and
balances meant premiums were small and thus the commission element above 50% was
very small (‘de minimis’) in real terms.
5.77 Responses from CMCs and consumer bodies expressed concern that the cases and circumstances
in which it is likely to have been true are so limited, and the risk of firms misapplying it so high,
that we should remove the example.
Our response
We do not consider that this example is likely to lead to inconsistency between
rms, or misapplication by them, as our proposed rules and guidance already
state our view that this rebuttal circumstance is only likely to be relevant in
limited circumstances.
However, we would assess rms’ application of this example, and of our
overall rules and guidance, as part of our ongoing monitoring of rms’ PPI
complaint handling.
The suggestion that a policy price of less than £9 per £100 should rebut the
presumption of unfairness rests on the argument that the FSA thought that a
customer would still have bought PPI at this price, regardless of certain failings
in the sales process, and that, by analogy, he would not have been dissuaded
from buying by knowing that the commission was more than 50% of this price.
We do not agree with this reasoning:
• The suggestion focuses on an objective threshold for ‘value for money’,
whereas Lord Sumption’s focus was on disclosure and the consumer being
able to assess value for themselves, whatever judgement they might reach.
• The FSA did not assess £9 as ‘fair value’ in PS10/12, but simply recognised it
as a reasonable comparator for the specic purpose of calculating redress in
certain single premium PPI mis-sales.
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• As far as PS10/12 implied a view that the complainant would have bought
PPI anyway, it was that they would have bought a different non-single
premium type of PPI where there were only specic failures to consider. This
is a very different set of circumstances, and gives no guide to the question of
whether the non-disclosure of commission would have made no difference
whatsoever to their judgement about the PPI’s value.
In line with our comments above concerning costs and RPPPI, we do not
agree that a small absolute sum of commission should allow the conclusion
that disclosure would have made no difference whatsoever to the consumer’s
judgement of value. We consider that the principle in Plevin, of undisclosed
commission impacting a typical consumer’s thinking and, beyond a tipping
point in percentage terms, being likely to create an unfair relationship under
s.140A, remains applicable where the absolute sum of commission is small.
(But see below, for discussion of de minimis considerations in the context of
assessing redress.)
Where consumer had a 'relevant role in the nancial services industry'
5.78 Some responses from industry felt that this example was vague and would cause uncertainty
about what roles were relevant and inconsistent outcomes.
5.79 Some responses from consumer bodies and CMCs were concerned that this example could
capture many people who worked in retail banking, whether or not it was their job to know
about PPI commission.
Our response
We propose to amend this example to clarify that it should only potentially
apply where the role in the financial services industry was one which gave
the complainant an awareness of the level of commission and anticipated
profit share.
Where the insurer provided the PPI to an intermediary rather than the CCA lender
and the CCA lender was not party to the commission agreement
5.80 We mainly proposed this example in response to the case of Axton v GE Money Mortgages Ltd
(‘Axton’).
31
In Axton, the broker and the third party insurer had an agreement that the insurer
provided PPI policies to the broker. The lender was not a party to this agreement. The premium
was not added to the amount of the loan. The amount of the agreed loan remained the same
and the lender merely responded to the broker’s request on the customer’s behalf to pay the
premium out of the sum to be loaned. No commission was paid by or to the lender for the
PPI policies. In Axton, the court found that the very limited involvement by the lender was not
sufficient to give rise to an unfair relationship.
5.81 Some responses from industry suggested that although our drafting in CP15/39 reflected the
specific fact pattern of the Axton case, it would be more appropriate to reflect the broader
principle expressed in Axton and focus on what the lender knew, or did not know, and thus
would be able to disclose.
31 Judgment was handed down by the High Court on 22May 2015.
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5.82 Some responses from consumer bodies and CMCs did not agree with this example, saying
that, regardless, they would have expected the lender to ensure its supply chain relationships
operated in a fair way that served the consumer’s interest.
Our response
We do not agree with the consumer body and CMC criticism of this example
because we do think it is appropriate to focus on what the lender knew or did
not know and thus would be able to disclose as set out in Axton.
We now propose some amended drafting of this example to reflect more clearly
the broader principle expressed in Axton concerning what the lender did not
know and could not reasonably have been expected to know and what they
would be able to disclose (see DISP App 3.3A.5G(1) as amended).
A consumer’s ‘track record’ in asking about commission on other products
5.83 Responses from industry argued that:
• it is difcult to see why a customer with a track record of showing a close interest in
commission should have been offered the same product, but with a lower commission rate,
than a less sophisticated customer who did not demonstrate this close interest
• it is difcult to see why a customer who genuinely had such a track record of close interest
had not asked about commission at the time of the PPI sale
• at the least, we should make clear that generic assertions of such track record would not be
enough and that credible evidence of it would be needed
5.84 Responses from CMCs and consumer bodies did not comment on this example.
Our response
We propose to remove this example from our proposed rules and guidance (see
DISP App 3.3A.6G as amended).
A consumer in particularly difcult nancial circumstances at point of sale
5.85 Responses from industry argued that:
• This example is too wide and ill dened, introducing unwelcome uncertainty that CMCs
may seek to exploit in shaping their complaints.
• A customer’s nancial circumstances should have been considered by a rm at Step 1, so,
having concluded there was no mis-sale of PPI, it is unclear why these circumstances should
have additional bearing at Step 2.
• It is difcult to see why a customer who could afford the PPI, but was less nancially
secure than another customer, ought to have been offered the same product with a lower
commission. Nor is it clear why this would have helped their nancial hardship, as the
overall premium would have stayed the same.
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• The example should at least be amended to exclude instances of nancial difculty covered
by the PPI policy.
• We should simply provide rms with exibility at Step 2 to look at the circumstances of
each case and assess, on the facts, whether there are particular features that mean redress
should be paid.
5.86 However, responses from CMCs and consumer bodies said that:
• We should remove the word ‘particularly’. It is vague and sets the bar for rebuttal too
high, excluding the signicant proportion of PPI consumers who were in nancial difculty
and for whom undisclosed commission of less than 50% may still have created an
unfair relationship.
• We should make clear that rms should ask whether the complainant was in difcult
nancial circumstances at the time of sale.
Our response
We do not agree with the industry criticisms of this example, as these mainly
misrepresent our position. We are not saying that the consumer in particularly
difcult nancial circumstances ought to have been offered PPI at a lower
commission rate. Rather, we are saying that although such a consumer may
have needed PPI and may not have been mis-sold, their circumstances of
particular nancial difculty meant that not being told the level of commission
by the lender may have created an unfair relationship, even though it was
less than 50%. This is because a consumer in particularly difcult nancial
circumstances is more likely to be sensitive to issues of value and to therefore
question whether they should purchase a policy even where the commission
amount is less than 50%.
On the other hand, we do not think that this circumstance would have been
a common one. So we do not agree that we should remove the modier
‘particularly’. The word makes clear our view that this example would not apply
to the vast majority of PPI customers who, by denition, would have been in
debt and thus arguably in some nancial difculty.
We also do not agree that we need to prescribe that the lender should enquire
at Step 2 about the complainant’s financial circumstances at the time of sale.
This would be too granular an intervention. In any case the lender may have
knowledge of this from its credit assessment at the time of the loan and
subsequent payment history.
Other suggested circumstances of rebuttal
5.87 Some responses also suggested the following additional circumstances of rebuttal:
• instances where the consumer themselves pushed for the PPI to be provided
• on the individual facts of a case, even where these do not t with the FCA’s examples and
presumptions – consistent with s.140A
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• other factors including those which Lord Sumption referred to in the Plevin judgment, and
a number of others, such as:
–
the borrower’s sophistication or vulnerability
–
their previous borrowing and renancing of loans
–
the length of the PPI agreement and the loan term and whether there was a mismatch
–
whether there were other options available in the market
Our response
We do not consider that we need to add these suggestions to our rules
and guidance.
Our proposed rules and guidance make clear that firms can and should look at
all relevant matters when assessing fairness.
The main elements of redress at Step 2
5.88 At paragraphs 5.63-5.76 of CP15/39, we proposed that a firm should remedy the unfairness if
it concluded that an unfair relationship under s.140A had been created due to undisclosed high
commission. The proposed key elements of redress were:
1. the difference between the commission the customer paid (eg 70% of the premium) and
50% (ie 20% of the premium in this example) plus
2. the historic interest the customer paid on that portion, where relevant (i.e. the interest paid,
in this example, on the 20%) plus
3. annual simple interest at 8% on the sum of 1 and 2
5.89 However, we also proposed that firms should also consider whether the situation in a particular
case requires a different form or level of redress in order to remedy the unfairness found.
5.90 We asked:
Q12: Do you agree with the key elements of our proposed
approach to redress at Step 2 of our proposed rules and
guidance concerning PPI complaint handling in light of
Plevin?
The difference between the commission the customer paid and 50%
5.91 Most responses from industry agreed with our proposed approach to redress.
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5.92 Among responses from CMCs and consumer bodies:
• Some said that they would agree with the logic of our proposed approach to redress if the
tipping point was much lower than the 50% we had proposed.
• Some said they disagreed with the proposed logic and that fair redress should instead be
the return of all the undisclosed commission, as Mrs Plevin received.
• Some said that fair redress should instead be the return of the full premium. This is because
it would generally be more reasonable to assume that the consumer, had they been told
the high commission level, would more often than not have decided that the policy was not
value for money and not bought it.
5.93 Some responses from CMCs and consumer bodies also expressed broader concerns that:
• we were trying to mitigate the nancial impact of Plevin and giving a clear signal to rms
to minimise redress
• the calculations in our proposed approach would be complex and, given rms’ poor track
record in this area, give rise to scepticism and probable challenge from complainants
• our approach would lead to less redress than in Plevin or other relevant recent court cases,
and so force consumers into the expensive and complex process of going to court to get
proper redress
Our response
We remain of the view that our proposed approach to redress, centred on the
return of that portion of undisclosed commission that exceeded the tipping
point, is fair and appropriate. Brookman and Plevin show that the courts might
take a variety of approaches to redress on individual cases. We consider our
proposed approach to redress to be a reasonable starting presumption for a
regulatory response.
Although it was the remedy in Plevin ordered by the Manchester county court,
we do not agree that our approach to redress should be the return of all the
commission that was not disclosed. This is because we do not think this would
t well, or be consistent, with the central importance Lord Sumption gave to
the notion of a tipping point. Also, the consumer, who as would have been
established at Step 1 was not mis-sold, had a need for the protection offered by
the policy and enjoyed the benet of that protection before complaining. So it
is fair and reasonable for the lender to keep some of the commission from the
policy’s distribution (i.e. the portion under the tipping point).
Nor do we agree that our approach to redress should be the return of all the
premium(s) paid by the consumer. Adopting this approach would dissolve any
meaningful distinction between a mis-sale and an unfair relationship under
s.140A, and thus between our existing Step 1 and proposed Step 2. In our
view, it would (even more than the return of all commission) give excessive
redress to the consumer who had enjoyed the benet of that protection before
complaining. We consider it is fair and reasonable for the consumer to have still
paid for the underwriting of the policy and for some of the commission from
the policy’s distribution (ie the portion under the tipping point).
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We believe our proposed approach to redress to be fair and appropriate in light
of Plevin, and have not adopted it to limit the nancial impact on rms. Nor do
we consider that our proposed approach gives rms this impression. If, in the
future, we found that rms were not complying and paying too little redress,
we would take robust action.
We do not consider that our proposed approach implies excessive complexity or
operational challenges for rms. However, we recognise that, just as for redress
under Step 1, there would probably be some period of bedding-in of the
approach and some unforeseen issues arising out of particular case scenarios
that would need to be sensibly discussed and resolved along the way.
While we also recognise that some complainants and CMCs may be sceptical
about firms’ accuracy in assessing redress, we consider that this can soon be
overcome if firms are diligent and compliant in their approach and redress
calculations and explain their redress offers clearly and fairly to complainants.
5.94 Some responses from industry disagreed with the logic of our proposed approach to redress.
They argued that redress should instead be the return of the portion of the premium that was
in excess of £9 per £100 of cover or that we should follow the approach that HHJ Keyser QC
made use of when awarding redress in Brookman.
Our response
HHJ Keyser QC used his discretion to formulate a broad remedy that he
considered appropriate in the particular circumstances of Brookman. (He
commented that his remedy resulted in much the same redress as our proposed
approach would have done, although he did not elaborate on this.)
We do not feel this approach is one that is readily replicable or suitable for the
kind of framework approach we are proposing, which is intended to provide a
workable process for rms and bring consistency to their handling of relevant
complaints and consumers’ outcomes.
Additionally, we do not think that it would be appropriate to base our approach
to redress on the difference between the premiums paid and £9 per £100. This
is because:
• That price was put forward by the FSA for the different and specic purpose
of calculating redress in certain SPPPI mis-sales where there were failures
to consider or disclose the non pro rata nature of the refund for early
cancellation only. This is a very different set of circumstances from, and has
no obvious linkage to, the tipping point concept or consideration of how
to redress fairly someone for whom the non-disclosure of commission had
created an unfair relationship under s.140A.
• A complainant could have paid undisclosed commission of over 50% but
not receive any redress if the overall price was less than £9 per £100. This is
not coherent in the context of our approach and does not conform with the
approach taken in Plevin, which is that non-disclosure of commission over
the tipping point is key.
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Redress where commission less than 50% caused the unfair relationship
5.95 Some responses from industry were concerned at our suggestion (at paragraph 5.64 of
CP15/39) that where factors indicate that an unfair relationship was created despite the non-
disclosed commission being less than 50% – for example 40% – then the firm should pay
redress based on the difference between that figure and the commission the complainant
paid. These responses said this approach would not be operationally feasible and would lead
to inconsistency between firms. They said it would be more appropriate for the rules simply to
require payment of ‘an appropriate amount of redress taking into account all the circumstances
of the case’.
5.96 Some responses from CMCs and consumer bodies expressed concern that this approach left
too much discretion to firms to choose the percentage to use.
Our response
We believe our proposed approach to redress in such cases is an obvious and
natural extension of the logic of our proposed approach in cases where the
undisclosed commission was over 50%.
We do not see, and rms did not explain, why this approach would be
operationally unfeasible. Nor do we agree that the approach would give rms
too much discretion or lead to inconsistency. Any scope for discretion is caused
not by this proposed approach to redress, but by our allowance, discussed
above, that the presumptions can be rebutted – exibility which we continue
to consider appropriate.
However, we accept that the proposed approach is not necessarily the only way
to provide fair redress and agree that the over-arching obligation on the rm is
to pay redress that remedies the unfairness found in the circumstances.
As noted, if we make these rules and guidance, we will monitor firms’
complaint handling in light of them. We will act robustly if we find unfair
approaches, including unfair assessment of redress in complaints where the
usual presumptions have been rebutted.
Historic interest
5.97 All responses from consumer bodies and CMCs, and most responses from industry, agreed that
in order to award fair redress, it was necessary to assess and include the past interest that the
consumer had paid within each individual monthly payment on (notionally) the ’commission
above 50%’.
5.98 However, some industry responses said that such historic interest should not be included in
redress at Step 2. The main arguments behind this view were that:
• It was inconsistent to propose including historic interest (and thus account reconstruction),
as for mis-selling redress, but to say that ’the logic of our approach at Step 2 is not to put
the customer back in the position they would have been in if had they been told of the high
commission.’
32
32 See paragraph 5.80 of CP15/39.
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• Our approach implied a calculation as if the consumer had bought a product that was
cheaper by the portion of commission over the tipping point. However, no such product
existed and a lower commission would not have made the policy cheaper.
• A better approach would be not to include historic interest and simply return the amounts
of each commission charge over 50% (plus simple interest).This would fairly return any
undisclosed surplus commission, and better recognise the uncertainties and limited options
the consumer would have faced if had they been told the commission.
Our response
We do not agree that our approach to redress at Step 2 generally, or to historic
interest specically, implies any assumption that the customer would have
bought an alternative PPI policy that was cheaper by the amount of the excess
commission over the tipping point. Therefore, we do not need to take into
account whether alternative cheaper PPI policies existed or were available to
the consumer. Rather, as stated above, our proposed approach simply seeks to
redress the customer for that element of undisclosed excess commission which
created the unfair relationship under s.140A.
It is in that specific sense, of our approach not second guessing what the
consumer would have done had they been told of the commission, that we
meant that our approach was different from the ‘but for’ logic at Step 1. We did
not mean that our overall approach to redress had no element of restoring the
consumer’s financial position to what it would have been without the undisclosed
excess commission. We see no inconsistency between our description of the
Step 2 approach and the proposed return of the additional historic interest
the consumer paid due to the element of undisclosed excess commission that
created the unfair relationship under s.140A. For the same reasons, we remain
of the view that not returning that additional historic interest would leave the
complainant inadequately redressed for the unfair relationship under s.140A
created by the undisclosed excess commission.
8% annual simple interest
5.99 Most responses from industry agreed that to provide fair redress for the ‘out of pocket’ expense
to the customer from the undisclosed excess commission and historic interest on it, firms should
add annual simple interest since the dates of the relevant monthly payments by the consumer.
5.10 0 However, some responses from industry argued that the rate of simple annual interest should
be lower than 8% because:
• for the time period since s.140A came into force (April 2007), 8% is far above base and
market rates and thus un-commercial and punitive
• 8% has fallen out of favour with the Courts in relevant recent cases, consistent with this
lower rate environment
• it is unfair to require rms to pay such high interest for periods where the law was silent
on the obligation to disclose commission, or periods where the law said non-disclosure of
commission did not give rise to an unfair relationship (for example, following the Court of
Appeal decision in Harrison v Black Horse)
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• something less than 8% would better reect the unusual nature of the undisclosed PPI
commission issue
• although DISP App 3 provides for 8% interest, the Financial Ombudsman Service is not
required to apply this. Section 229 FSMA allows it to add interest to an award at its discretion,
and the exercise of that discretion should, as with all other aspects of its determination,
reect what is fair and reasonable in the circumstances of the case
Our response
We remain of the view that 8% is generally an appropriate rate of simple
interest to apply within the proposed approach to redress at Step 2. It has been
the rate used for a number of years for PPI redress at Step 1 (for mis-sales) and
we see no relevant difference between mis-sale and undisclosed commission
redress, where in both cases the issue is the consumer not having had the use
of the redress money, that would justify a lower simple interest rate.
We are aware that some recent court cases have applied various lower rates.
However, this does not persuade us to change our approach, as:
• Our established choice of 8% is an exercise of our regulatory judgement, in
light of what seems to us generally fair and reasonable, rather than a rigid
reection of practice in the courts.
• Most of the parties involved in the relevant court cases, and their nancial
circumstances, did not seem to us to closely resemble typical PPI consumers.
They were generally reasonably afuent and involved in business enterprises
or investments, and so provide little obvious reason for us to change our
approach to PPI complainants.
• It is generally reasonable to assume that PPI consumers, even if they had
some savings during the period they held PPI, were day to day debtors who
would probably have had to make up the sums of money removed from
them by mis-sold PPI or undisclosed commission through increased loans
and credit card use. We do not think it is reasonable to assume that those
PPI sums, had they been left with these consumers, would generally have
been placed in savings or investments.
• While it is right to say that base rates and savings rates have remained low
since 2008, average interest rates on unsecured personal loans have mostly
remained above 8%, and on credit cards above 15%. It is these rates at
which day to day debtors would have been likely to have made up the sums
of money removed from them by mis-sold PPI or undisclosed commission.
• We do not agree, as stated earlier, that April 2007 should be a signicant
watershed in our approach. Earlier commission sums may therefore need to
be included in redress, including from periods when base rates and lending
rates were much higher than now. Thus the 8% covers a wide period of
time and range of base rates and lending rates.
However, firms do have the option of including a lower rate of simple interest
in PPI redress (at Step 1 or Step 2) if they can justify this as fair and appropriate
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in the particular circumstances of the complaint and the complainant’s
financial circumstances.
De minimis considerations in assessing redress at Step 2
5.101 Concerning our overall proposed approach to redress at Step 2, some responses from industry
argued that there should be a de minimis threshold below which redress should not have to
be paid – for example, because the excess undisclosed commission was so small it could not
reasonably be considered ‘unfair’.
Our response
As we set out earlier, we do not agree that the presumption of unfairness should
be set aside when the premiums which the high undisclosed commission was
part of were low in absolute terms. Nor do we agree that redress that is low in
absolute terms need not be paid.
However, we accept that it may be reasonable for a rm, in order to avoid
disproportionate processing and administrative costs, to take a pragmatic
and simplied approach to calculating redress where it is clearly reasonable
to assume the amount of redress is likely to be small, as long as this simplied
approach does not disadvantage the complainant.
So, for example, some rms have argued that balances on many running-account
and restricted-use credit agreements are small, but that line by line assessment
and reconstruction of these accounts is complex.
33
In such circumstances, we
consider that a rm may reasonably be able to:
• assess in an approximate way that, in light of the average balance on the
account, the redress due would be modest (for example, in the tens of
pounds or less), and
• offer a sum in this region, which makes sure there is no risk that the
complainant is paid too little redress, but which is not underpinned by line
by line assessment of the account history or calculation of the precise redress
sum that, strictly, would be due
Conclusion
5.102 Overall, therefore, we consider that there is no reason to change the proposed key elements of
redress at Step 2 in our proposed rules and guidance on PPI complaints and Plevin.
Fairness and redress where commission and prot share rates vary over time
5.103 Some responses from industry asked for more clarity about:
33 For example, because running-accounts, unlike credit cards, often have different repayment schedules for each item purchased on
them.
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• how the tipping point and presumptions should work where the commission might vary
after the point of sale
• how rms should assess redress for PPI policies where the commission level has varied
during the life of the policy
5.10 4 This scenario of varying commission was felt to be particularly likely with RPPPI, where
policies could last for many years, commission was earned and paid monthly, and commercial
arrangements with insurers could change every few years.
Our response
Having considered these points, we are amending our proposed rules and
guidance to make clear the following:
• A rm should presume that failure to disclose gave rise to an unfair
relationship if the anticipated prot share plus the commission reasonably
foreseeable at the time of the sale was more than 50% of the total amount
paid in respect of the PPI policy (see DISP App 3.3A.4E(1)(b)).
We consider that ‘reasonably foreseeable’ in this context would be likely to:
– Include the situation where the rms involved in the transaction were
party to arrangements or an agreement where commission rates or
anticipated prot share would rise during the life of the relevant policy
and thereby, alone or together, exceed 50%.
– Exclude the situation where commission rates together with prot
share might rise over 50% due to the renegotiation of arrangements or
existing contracts with the insurer, or the negotiation and entering into
of new ones with that insurer or another. In this scenario, the likelihood
of such changes may have been foreseeable but the level of commission
and prot share that might result from the changes was not.
• Where a rm concludes that the anticipated prot share plus the commission
reasonably foreseeable at the time of the sale was more than 50% of the total
amount paid in respect of the PPI policy (and that this was not disclosed and
that this non-disclosure gave rise to an unfair relationship), the rm should
then apply our proposed approach to redress only to those periods of the
policy’s life where the actual level of commission paid, in combination with
the actual value of any payment(s) made under prot share arrangements,
was more than 50% of the total amount paid (see DISP App 3.7A.5E).
We appreciate that, even for regular premium PPI with monthly payments,
these relevant ‘periods’ are likely to be longer term and governed by the
arrangements or contractual agreements (often annual) in place during
those longer periods.
• Where a rm concludes that the anticipated prot share plus the commission
that was reasonably foreseeable at the time of the sale was 50% or less (and
that the non-disclosure of this level of commission and prot share did not
give rise to an unfair relationship at the point of sale), then the rm does
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not need to calculate or pay redress if it turned out subsequently that in fact
there were periods where the actual level of commission and prot share
was more than 50% (see DISP App 3.3A.4E(2)(b)).
We are also amending the description of the disclosures we are concerned with
at Step 2 (DISP App 3.3A.2E) to reflect the proposed inclusion of profit share
arrangements in our approach and these amendments concerning commission
and profit share rates that vary over time.
Q20: Do you agree with our proposed clarications that rms
should presume that the failure to disclose gave rise
to an unfair relationship where the anticipated prot
share plus the commission reasonably foreseeable at the
time of the sale were more than 50%, but then calculate
redress on the basis only of those periods where the
actual level of commission and prot share together was
more than 50%?
Other elements of the proposed approach to redress at step 2
5.105 As well as the key elements of redress at Step 2, at paragraphs 5.77-5.81 of CP15/39 we
explained that our proposed rules and guidance provide for four main differences concerning
other elements of redress at Step 2, compared to our established approach at Step 1:
• Previous successful claims on the policy: Unlike our existing approach to redress in DISP App
3, which allows the rm to deduct the value of a previously successful claim, we proposed
not to allow for redress at Step 2 to be reduced in this way.
• Rebates: We proposed that where the complainant had received a rebate on cancelling
the PPI policy, the rm should not deduct this from any redress it has determined it should
pay under Step2. This is different from our existing approach concerning redress at Step1,
where we do allow rebate deduction.
• Interaction with alternative redress procedure: We proposed that if a rm decided at Step
1 that a customer is due alternative redress (under existing DISP App 3.7.9E), then it should
also (if it is the lender) consider the complaint under Step 2 and, if it concludes redress
would be due at Step 2, pay the complainant the higher of the Step 1 or Step 2 redress.
• Live regular premium policies: We proposed that for a live RPPPI policy, the rm should, as
well as offering and paying any redress, tell the complainant the level of commission on the
PPI that they are paying, and offer them an informed choice of whether to continue the PPI
policy on that basis or cancel it without penalty.
5.106 We also explained that other aspects of our established approach to redress at Step1 were
carried across to our proposed rules and guidance at Step2:
• Loan restructuring (DISP App3 3.7.4E)
• Cumulative nancial loss in a chain of renanced loans and single premium policies (DISP
App 3 3.9.3G)
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• Consequential loss (DISP App 3 3.9.2G).
5.107 We asked:
Q13: Do you agree with our proposed approaches to the
other elements of redress at Step2? Do you perceive
any particular practical or operational difculties in our
proposed approach to these elements?
Redress and previous claims on the policy
5.108 Some responses from industry disagreed with our proposed approach. They said we should
provide at Step2, as we do at Step1, that if a customer had previously had a successful claim
on the policy then this amount should be deducted from any calculation of redress due.
Our response
We do not agree. Deducting the value of a previous claim makes sense in
the context of redress at Step 1, which is based on an assumption that the
consumer, but for the signicant sales failings, would not have bought the PPI
policy. In that assumed scenario, they would not have had a policy to make a
successful claim on.
In contrast, and as noted above, the logic of our approach to redress at Step2
does not take a view on what the consumer would have done had they been told
of the commission, but merely seeks to redress them for the unfair relationship
created by the non-disclosure of the commission over the tipping point. On this
scenario, they would still have had the policy and been able to claim on it. So
there is no reason to deduct previous claims from the redress due at Step2.
Rebates and redress
5.109 Many responses from industry criticised our proposed treatment of rebates. They argued that it
allowed some double-recovery for customers whose complaints are upheld at Step2 but who
had already been rebated all or part of their premium, and therefore of the commission, when
they cancelled their policy.
Our response
We now propose to allow previously rebated commission and prot share sums
above the tipping point to be reected in, and thus reduce, redress at Step2
(see DISP 3.7A.6E).
The effects of this proposed change can be seen in the following simplied
worked example (which assumes there was no mis-sale and leaves out the
historic interest and 8% elements which would need to be included in redress
to a consumer):
• The consumer paid £1,000 single premium for a PPI policy. Commission was
55% and anticipated prot share 20%. Non-disclosure of this 75% at the
time of sale created an unfair relationship.
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• Following a complaint, the rm calculates redress due at Step 2 as 70%
(reecting 55% commission plus actual prot share sums up to the point
of cancellation of 15%) minus 50% (the tipping point) = 20%; and 20% x
£1000 premium = £200.
• The consumer had previously cancelled the PPI early and got £600 rebate.
Under our approach in CP15/39, the consumer would receive £200 redress in
addition to the £600 rebate they previously received.
Under the proposed change, we would instead say that:
• of the £600 rebate, £420 (i.e. 70%) represented commission and actual
prot share, of which £120 (20%) represented commission and actual prot
share over the 50% tipping point
• so the rm handling the complaint at Step2 now needs to pay only a further
£80 as redress (£200 minus £120)
Q21: Do you agree with our proposed modication of
allowing rebates to be reected when calculating
redress at Step2?
Interaction with alternative redress or other partial redress at Step1
5.110 Responses from industry supported our proposal that firms should pay the higher of alternative
redress at Step1 or Plevin redress at Step2. But some also asked:
• if this contradicted our proposed guidance (at DISP App 3.1.1(G)(3)) that a lender should
look at Step2 only if no or partial redress has been provided under Step1
• whether and how forms of partial redress at Step1 other than alternative redress should
be treated at Step2
5.111 Some responses from CMCs and consumer bodies agreed with our approach, but others
argued variously that:
• if a rm has decided that alternative redress (based on the £9 per £100 price) is due at
Step1, and that redress is due at Step2, then the complainant should receive both the
alternative redress and an amount reecting undisclosed excess commission within the £9
per £100 price
• alternative redress is already difcult to explain to complainants and so comparing it
with the calculation of Step2 redress will be even more complex and inevitably lead to
consumer confusion
Our response
We do not agree that it is overly difcult to explain clearly to the complainant
the sums of redress they would be due under Step1 alternative redress and
Step2 respectively and the higher of these.
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We do not agree with the suggested hybrid approach of adding to alternative
redress at Step 1 a sum of Step 2 redress that is based on the undisclosed
excess commission of the assumed RPPPI alternative used in the alternative
redress calculation. The alternative approach to redressing mis-selling assumes,
in certain limited circumstances, that a customer who bought a single premium
PPI policy would, if their sale had been properly conducted, instead have
bought a regular premium policy. However, clearly there was no actual sale to
the customer of that regular premium policy, and so there can have been no
commission or non-disclosure of commission either.
However, we do now propose to amend our rules and guidance to clarify that:
• where a rm considers a complaint under both steps, and assesses under
Step 1 that partial redress is due (for example, because alternative redress
is appropriate, or because it intends to deduct the value of a previously
paid claim on the policy), then it should pay the higher of that partial Step
1 redress or the redress it assesses as due at Step 2 (see DISP App 3.7A.10E
as amended)
• where a rm that is a lender has previously paid partial redress at Step1 (or
is aware that another rm has previously done so), it should assess what
redress might be due at Step2 and, if this sum is higher than the partial
redress the consumer received previously, pay them the difference (see DISP
App 3.7A.12E)
• where a rm is assessing redress at Step1 and is aware that another rm has
previously paid redress at Step2, the rm may deduct this from the redress
due under Step1 (see DISP App 3.7.16E)
Redress and live regular premium policies
5.112 Most responses from industry agreed with our proposed approach to live RPPPI policies but
some asked for further clarity on:
• whether the commission of the live policy had to be disclosed only for complaints upheld at
Step2, or for any complaint considered at Step2
• whether the disclosure should be of ‘commission’ as dened in our proposed rules
and guidance
• whether the disclosure should be of the ‘commission’ at the original point of sale and/or as
assessed in the complaint, or of the commission as it would now be going forward if the
consumer chose to maintain the policy
• how the information can be provided in a way that is consistent across rms and easy for
customers to understand and compare
5.113 Most responses from CMCs and consumer bodies agreed with our proposed approach but
some also asked if we expected firms to tell any consumer who asked what their commission
is or was, even if they had not complained.
5.114 Some responses from industry said we should further specify that if disclosure of the commission
is made and the consumer chooses to continue the PPI policy, then:
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• there will be no scope for them to subsequently allege an unfair relationship due to that
level of commission, or
• if they do not bring a complaint about non-disclosure of commission within 30 days, there
will be a presumption that their relationship was not unfair for as long as the commission
rate remains at or below the level disclosed
5.115 Other responses from industry disagreed with our proposed approach, as:
• they would not wish the details of commercial arrangements with partners to be disclosed
because these are only one aspect of a wider set of commercially sensitive terms, and it
would work against the FCA’s competition mandate
• a lender is unlikely to have a right to unilaterally cancel a customer’s policy
Our response
To help the complainant decide whether to retain their live RPPPI policy, the rm
should disclose the current level of commission and anticipated prot share –
i.e. not the commission and anticipated prot share at the time of sale (see DISP
App 3.7A.8E).
We do not think we need to specify how rms should make such disclosure.
This would be too granular an intervention and we can reasonably rely in this
context on Principle7 (rms’ obligations to provide consumers with information
that is clear, fair and not misleading). Consistency in disclosure should anyway be
helped by our proposed denitions of commission and anticipated prot share.
Our proposal expressly provides only for such disclosure for a live RPPPI policy
where the rm has upheld and is redressing a complaint at Step2.
However, where a rm has rejected a complaint at Step2, we would expect
the rm to explain clearly to the complainant the reasons for this rejection. We
presume that such reasons would often be that the commission and anticipated
prot share was disclosed at point of sale, or that it was not disclosed but was
less than 50%, or that it was more than 50% but other factors meant the
presumption of unfairness could be rebutted. So in practice, we anticipate that
most complainants with live policies who were rejected at Step 2 would at least
be told whether the commission they had been paying and the prot share
anticipated at the point of sale were together under or over 50%.
Our rules and guidance in ICOBS do not currently require rms to disclose
commission or prot share arrangements on request to retail customers of
general insurance.
34
Our proposals here do not change that position. Clearly,
however, a refusal by a rm to disclose this on request may be more likely to
provoke a complaint about undisclosed commission and prot share.
On the other hand, as set out above, we consider that rms that were both
lender and seller will generally need to engage Step2 if the complaint is not
upheld at Step1, even if commission or prot share is not referred to in the
34 Since April 2014, the FCA’s new consumer credit rules (CONC 4.5) do provide for commission disclosure by credit brokers.
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complaint. So the fact that a consumer does not know the commission or prot
share, or has asked what it is but not been told, should not stop the fairness of
the relationship being considered by the rm at Step2.
If a consumer with a live policy is told of the current level of commission and
anticipated prot share, then we agree that this disclosure is likely to mean that
the relationship is not (or is no longer) unfair under s.140A, at least for as long
as these remain at or below the level disclosed. We consider these effects of the
disclosure to be self-evident in the context of Plevin and do not, therefore, see
a need to set them out in additional rules or guidance.
We do not consider that such disclosure requires or risks revealing commercially
sensitive arrangements between the lender and other parties or is anti-
competitive. Our proposal does not specify that commission and prot share
should be separately disclosed.
We are not proposing that lenders unilaterally cancel a customer’s RPPPI
policy. Instead, we propose that the lender’s disclosure should put relevant
complainants in the position to make an informed choice about whether to
request such cancellation. Such a request can then be progressed by the lender
with the insurer in their usual way, though the lender should ensure that no
penalty is imposed or passed on to the consumer.
Loan restructuring, cumulative nancial loss in a chain of loans, consequential loss
5.116 We did not receive specific feedback concerning these aspects.
Our response
We understand that redress calculations and restructuring, particularly in chains
of loans, can be complicated. We also note the broader point made in some
responses about the importance of consistency and alignment with the Financial
Ombudsman Service over redress calculations.
Accordingly, if we proceed to make final rules and guidance, then to assist firms
and complainants and help achieve this consistency, we would provide relevant
worked examples of redress calculations in different SPPPI and RPPPI scenarios.
We would expect the Financial Ombudsman Service to give due weight to such
examples, if and when they are finalised, when it is deciding fair redress in
relevant cases.
Previously rejected complaints
5.117 At paragraphs 5.87-5.89 of CP15/39, we:
• proposed not to require (or otherwise expect) rms to proactively re-open or review
previously rejected PPI complaints against our proposed new rules and guidance, even if
the previous complaint had expressly raised non-disclosure of commission
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• said that we did not think a consumer could re-submit a complaint that is the same, or
covers the same subject matter, as a previously submitted complaint
• said that in our view, where a consumer had previously made a complaint about a PPI sale
that did not expressly raise undisclosed commission as an issue, and this complaint was
rejected, then, in light of Plevin, they remain free to raise this additional issue about the
policy with the lender (if the underlying credit agreement is within s.140A-B) who would
then have to assess that complaint at Step2
5.118 We asked:
Q14: Do you agree that consumers who have previously made
rejected PPI complaints that did not mention undisclosed
commission, and whose credit agreements fall within the
scope of s.140A-B, should be able to raise this additional
issue with the lender and have this assessed under our
proposed new rules and guidance?
5.119 Most responses from industry agreed with our proposed approach, though some had concerns
about the potential involvement of CMCs (see below).
5.120 Some responses from industry, however, disagreed that consumers should be able to raise the
issue of undisclosed commission on a PPI policy that they had previously and unsuccessfully
complained was mis-sold. These responses argued that the previously rejected complaint about
the PPI policy and its sale was handled appropriately at the time and that the subsequent new
case law in Plevin should not be applied retrospectively to the same policy and sale by allowing
the consumer to raise the issue now.
5.121 Some responses from industry asked us to clarify:
• whether we consider that a previous complainant who now raises with a rm the additional
issue of undisclosed commission about the same policy:
–
was obliged to do so within 6 months of receiving the rm’s nal response or else fall
out of time to have the rm or the Financial Ombudsman Service consider it, or
–
instead, was making a new complaint, for the purposes of complaint handling obligations,
reporting and the right to go to the Financial Ombudsman Service (potentially for the
second time), such that it was irrelevant whether 6 months had passed
• what we expect where a further complaint from a previously rejected customer does not
expressly raise the issue of undisclosed commission
• whether it makes any difference to our view if the consumer who raises with the rm the
additional issue of undisclosed commission about the same policy is doing so more than
3 years after their original complaint, or more than 3 years after receiving a customer
contact letter from a rm explaining potential weaknesses in selling practices that may have
impacted their sale
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Our response
Whether individual complaints are covered by our complaint handling rules or
fall within the jurisdiction of the Financial Ombudsman Service would need
to be decided on a case by case basis, including by the Financial Ombudsman
Service in respect of the cases referred to it.
However, our view, broadly, is that:
• Plevin has highlighted a ground for complaint that is quite different from the
grounds focused on mis-selling that have featured in most PPI complaints.
• In addition, whilst our existing rules and guidance setting out how rms
should handle complaints relating to the sale of PPI require rms to establish
the true substance of the complaint and take a broad interpretation of the
issues raised, they do not specically require lenders to consider as a matter
of course whether the non-disclosure of commission or prot share caused
the consumer detriment. So far as we are aware, lenders have not routinely
considered that issue when assessing complaints, unless it was raised by the
consumer.
• Therefore, a consumer who has not previously complained expressly about
undisclosed commission or prot share, and not previously had their full
premium returned to redress a mis-sale, can make what we regard as a
new complaint to a lender and, regardless of whether it expressly raises
undisclosed commission and prot share or not
35
, have that new complaint
assessed by the lender at Step 2 and, if dissatised with the rm’s response,
refer that Step 2 complaint to the Financial Ombudsman Service - and this
remains the case regardless of whether:
– (for the purposes of DISP 2.8.2R(1)) the new complaint is made more
than 6 months after the rm’s nal response to the rst complaint
– the Financial Ombudsman Service considered and rejected (or did
not award full return of premium as redress in respect of) a previous
complaint, unless the consumer expressly complained about undisclosed
commission or the Financial Ombudsman Service considered that issue
as part of its investigation into the sale.
Where appropriate, we would expect a rm, in its response at Step 2, to make
clear that:
• it had previously considered general issues around the sale (at Step 1)
• its new nal response deals with the issue of undisclosed commission only
(at Step 2)
• the consumer can refer the new nal response (only) to the Financial
Ombudsman Service, if dissatised with it
35 In our response under para 5.31 above, we note that the proposed rules and guidance, together with our existing rules and
guidance, would have the effect of generally expecting lenders to consider the issue of undisclosed commission or profit share at
Step 2 when they assess PPI complaints within the scope of s.140A-B and not fully redressed as mis-sold, even if this issue is not
expressly raised by the complainant.
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We do not consider that any of this amounts to inappropriately applying the
subsequent new case law in Plevin retrospectively. This is because, in our view,
in most previous PPI complaints the issue of undisclosed commission or prot
share was neither known to, nor raised by, the complainant, nor considered by
the rm. The issue was accordingly not considered in light of the previous case
law.
However, where a previous complaint did expressly raise the issue of undisclosed
commission or prot share, or the rm can show that it did expressly consider
the issue (or, as noted above, the Financial Ombudsman Service considered
the issue), then we accept that the issue of undisclosed commission or prot
share is likely to have been considered in light of the case law at the time and/
or that the consumer is likely to have known (or ought to have known) about
that issue. As such, a subsequent complaint need not be considered at Step 2
but instead could probably be fairly rejected as not disclosing new issues for
investigation and/or as being out of time.
Consistent with these views, we consider that for the purposes of the three year
limb of our existing time limit rules (at DISP 2.8.2R(2)):
• only a knowledge or broad understanding that specically relates to the
level of commission they paid should ordinarily be regarded as making a
consumer aware that they have cause for complaint about undisclosed
commission and as starting the three year period for them to have a
complaint concerning this considered
• a consumer who knew (or ought reasonably to have known) only that they
had cause for complaint about their sale generally (for example because
they had a claim on the policy rejected on the grounds of ineligibility or
exclusion or had received a customer contact letter explaining that they may
have been mis-sold) would not ordinarily have been aware of having cause
for complaint about undisclosed commission
We have proposed a new piece of PPI-specic guidance to this effect about the
application of DISP 2.8.2(2)R (see new DISP 2.8.8G). Although this rule applies
directly only to the Financial Ombudsman Service, as usual we would expect
rms to have regard to it when making judgements about whether individual
complaints have been made in time and need to have their merits considered
under DISP 1.8.1R.
For the avoidance of doubt, it follows that where a firm (that is both seller and
lender) receives a complaint from a consumer who, for example, received a
typical industry customer contact letter more than 3 years before, the firm will
ordinarily be able not to consider the merits of the complaint at Step 1, but will
ordinarily remain obliged to consider the merits at Step 2 (whether or not the
complaint expressly raises undisclosed commission, as discussed previously).
5.122 Most responses from CMCs and consumer bodies disagreed with our proposed approach on
the grounds that it did not go far enough to protect consumers. These responses suggested,
variously, that:
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• Previously rejected mis-selling complaints should be proactively reopened and reassessed
by rms under Step2, because not to require this puts too much onus on the consumer to
make a new complaint and will leave detriment from undisclosed commission unaddressed.
• Some previous complaints about commission that were rejected should be re-opened or
considered in new complaints, if they were rejected by rms after November 2014 (the
Plevin judgment) or, alternatively, after October 2012 (when Mrs Plevin lodged her appeal
with the Court of Appeal following the initial hearing at Manchester County Court on
5October 2012).
• All previous complaints about commission that were rejected should be re-opened or
considered in new complaints. To exclude any would be:
–
unfair, as it treats them more harshly than those who complain about commission after
the FCA’s intervention
–
perverse, as it would exclude precisely those consumers who were engaged enough to
have raised commission before the FCA’s proposed intervention
–
incorrect in law and in principle, because Plevin was declaratory on the law on unfair
consumer relationships (on the issue of non-disclosure of commissions) as it has
stood since s.140A came into force, so most or all previously rejected ‘non-disclosure’
complaints were decided incorrectly
• Previous complaints about commission that were rejected should be proactively reopened
by rms and reimbursed automatically where the rm knows from its own records that the
tipping point was exceeded.
Our response
Our view remains that, by taking an approach which considers whether the
issue of undisclosed commission or prot share was expressly dealt with or not
at the time of the original complaint, our proposal strikes the right balance
between being fair to consumers and avoiding putting retrospective obligations
on rms.
We do not think that this approach is affected by, or should be changed in
light of, the various stages in the judicial process that ultimately led to Plevin.
If a complainant raised a complaint about undisclosed commission or prot
share in light of the Plevin litigation, and that complaint was rejected by the
rm in question, then it would have been open to the complainant to refer
the complaint to the Financial Ombudsman Service. And we do not consider
that the fact (which we accept) that Plevin was declaratory of the law on
unfair relationships in this context as it has stood since s.140A came into force
means that previously rejected complaints about commission or prot share
were wrongly decided, or, in the context of our existing complaint handling
requirements, need to be reassessed.
We also do not consider that our approach places too much onus on consumers
who had previously complained unsuccessfully about mis-selling to understand
the new issue of undisclosed commission and complain about this. Given
they have complained previously, they are likely to be reasonably confident
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and engaged consumers. Also, our campaign will specifically aim to provide
information that is relevant to consumers in this position and encourage
them to re-engage with the PPI issue. We have also asked firms to commit
to various voluntary commitments, including ensuring that previously rejected
complainants are quickly directed to a new short Plevin complaint form which
does not ask questions that they would be unable to answer (such as ‘did you
pay high commission?’). And as noted earlier, we would anyway expect firms
who are both the PPI seller and lender to assess new complaints at Step 2
even where these do not expressly raise the issue of undisclosed commission or
profit share.
Previously rejected complaints and CMCs
5.123 Some responses from industry expressed concern that CMCs may:
• re-use existing customers’ letters of consent to make Step 2 only complaints, which will
drive increased complaint volumes and costs for rms
• re-submit previously rejected complaints, including those rejected on the grounds that no
PPI had been sold.
5.124 These responses therefore said that:
• CMCs who have previously made a complaint on a customer’s behalf about a PPI sale,
should seek fresh authority to make any new complaint about commission, especially where
an earlier letter of authority is over six months old
• such fresh letters of authority should have to follow the Principles For Letters Of Authority
For PPI Complaints
36
• clarication was needed about whether CMCs could seek fees if they had not obtained a
fresh letter of authority
• CMCs should be required to undertake appropriate due diligence to establish whether their
customers have a policy and complaint that is within the scope of our proposed rules and
guidance before bringing the complaint
• we should work closely with the CMR before any nal rules and guidance to ensure that
CMCs’ practices in these areas are closely monitored
Our response
In CP15/39 (para 5.89) we said that where a customer previously made a
complaint about a PPI sale using a CMC or other paid advocate, then in our
view, and that of the CMR, the CMC or advocate would not be able to rely
on their previous authorisation from the consumer to make a new complaint
about undisclosed commission or seek a fee from any redress resulting from
that new complaint.
36 This was agreed between various BBA and Professional Financial Claims Association (PFCA) members in December 2015, and records
best practice for letters of authority, aimed at delivering the best outcomes for both customers and firms.
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As noted in Chapter2, we do not yet regulate CMCs and so cannot currently
intervene to set rules and guidance for them concerning their involvement in
PPI complaints. However, we do discuss relevant matters with the Financial
Ombudsman Service, the CMR and CMC trade bodies, and would continue to
do so following any intervention.
Undisclosed commission – the lack of proactive measures and the deadline
5.125 In paragraphs 5.82-5.86 of CP15/39 we explained that we proposed:
• not to require (or otherwise expect) rms to proactively review, or contact consumers about,
past PPI sales that involved undisclosed commission
• to include complaints relating to Plevin and undisclosed commission within the scope of our
proposed deadline on making PPI complaints
5.126 Responses from industry supported these proposals:
• seeing them as a logical continuation of our established complaints-led approach to PPI
redress more generally
• agreeing that the issue of undisclosed commission following Plevin was not a situation in
which a s.404 scheme would be appropriate or proportionate
• considering that consumers potentially impacted by undisclosed commission
would be sufciently prompted to complain by our proposed wider consumer
communications campaign
• agreeing that complaints relating to undisclosed commission should be subject to the
deadline, in order to achieve our wider aim of bringing certainty and an orderly conclusion
to the PPI issue
5.127 In contrast, most responses from CMCs and consumer bodies argued that we should require
firms to proactively contact consumers and tell them what commission they paid and their right
to complain about this and seek redress. These responses said this was necessary because:
• it is unreasonable to rely on a complaint-driven approach to undisclosed commission when,
by denition, most consumers will not know the commission they paid
• a complaints-led approach will increase administrative costs for rms, provide a windfall to
CMCs and take fees from complainants’ redress
• not requiring proactive action due to the limits of application of Principle 6 to credit
agreements is to let rms off the hook on a technicality, to consumers’ detriment
• we had not said what proportion of Plevin-impacted sales could be dealt with under
Principle6 or through a s.404 scheme, nor assessed these options
5.128 Some responses from CMCs and consumer bodies argued specifically that we should establish
a s.404 review concerning undisclosed PPI commission as:
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• there has been signicant consumer detriment
• it is not relevant that we did not require commission disclosure, as the relevant criterion for
s.404 is whether there has been any kind of failure by a rm that gives rise to a remedy at
law – which Plevin clearly says there was
• the issue of undisclosed commission above a tipping point is tailor made for a s.404 scheme,
as the relevant considerations are similar across cases and straightforward to assess
5.129 All responses from CMCs and consumer bodies, including those few that supported the idea
of the PPI deadline generally, disagreed with our proposed inclusion of complaints about
undisclosed commission within the deadline’s scope because:
• the issue was a new one, raised only at the end of 2014 by the Supreme Court
• the issue was complex and would take consumers some time to grasp
• the judgment implies signicant consumer detriment and potential redress, yet we were
unfairly proposing to call time on this process before it had even started
• we had given no good reason why complaints about this new matter should be cut-off so
soon or why the normal 3 years from awareness of a problem should not apply to them
• our weak analysis of the effect of the proposed communications campaign and deadline
for PPI complaints in general made it hard to see how we could be so condent that
these interventions would be fair and benecial for PPI consumers affected by undisclosed
commission
• some complainants would inevitably fall out of time while being passed between or, worse,
not being passed between, lender and seller at steps 1 and 2
• Plevin claims will continue to be made to the courts after the deadline, so there would not
be certainty or orderly closure anyway
Our response
We remain of the view that our proposals are fair and proportionate.
Requiring rms to proactively contact potentially affected consumers would
be inappropriate, given that we did not require commission disclosure in our
ICOB/ICOBS rules. Instead, we think it is reasonable in the circumstances for
us to continue to rely on a complaints-led approach, as we have mainly done
so far for redressing PPI mis-selling. In any event, we do not consider that a
s.404 scheme could apply to the two thirds of PPI sales made before 2005, or
to credit agreements from lenders that did not carry out insurance mediation
before 1April 2014, because of the requirement in s.404 for there to have been
a regulated activity.
We are not dis-applying Principle6 and root cause analysis guidance: we simply
explained in CP15/39 that it would only apply to credit agreements that were
entered into after, or were outstanding on, 1April 2014, when credit became
a regulated activity under FSMA. However, even for those credit agreements
where Principle6 and this guidance does apply, we remain of the view that
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the consumers who may have been affected by undisclosed high commission
will be adequately prompted to act before the proposed deadline by our wider
consumer communications campaign and partnership activity (and from other
consumer body advertising and messaging). So in practice, rms are unlikely
to need to take any further action about those credit agreements that do fall
under the root cause guidance.
We do not consider that our complaints-led approach places too much onus
on consumers to complain about something (commission and prot share) that
they don’t know they weren’t told about. As set out in chapter3, our campaign
will provide information to consumers about the Plevin issue and encourage
them to engage with it and consider their own position. And again, we would
expect relevant rms to assess new complaints at Step 2 even where these
do not expressly raise the issue of undisclosed commission or prot share, or
provide few details about it, or show little understanding of it.
We remain of the view that excluding the potentially numerous complaints
involving undisclosed commission from the scope of the proposed deadline
would materially adversely affect the successful delivery of our aims. In particular,
such exclusion would undermine the certainty and orderly conclusion which we
continue to believe the proposed deadline and campaign would bring.
PPI complaints and other court decisions
5.130 In paragraphs 5.90-5.93 of CP15/39, we noted that the courts have considered, and will
continue to consider, issues similar to those raised in Plevin in other cases. One such case was
that of McWilliam v Norton Finance.
37
We proposed that:
• Our proposed rules and guidance on PPI complaints and Plevin should not reect McWilliam
at this stage.
• We should carve out PPI complaints raising issues similar to those in McWilliam from our
existing rules and guidance for other types of PPI complaints (DISP App 3). That leaves them
to be dealt with under our high level complaint handling rule in DISP 1.4.1R, giving rms
exibility to consider any McWilliam-type complaints about PPI on a case-by-case basis.
• McWilliam-type complaints about PPI should be included in the scope of our
proposed deadline.
5.131 We asked:
Q15: Do you agree with our proposed approach of handling
McWilliam-type PPI complaints under our existing high
level (non-PPI specic) complaints handling rules only?
5.132 Most responses from industry agreed with our proposed approach, on the grounds,
variously, that:
37 In March 2015, the Court of Appeal held that a fiduciary relationship existed between Mr and Mrs McWilliam and Norton Finance.
Norton, an independent credit broker, had not disclosed the amount of commission it received on the sale of a PPI policy, and was
found to be in breach of its fiduciary duty by failing to obtain Mr and Mrs McWilliam’s informed consent for this.
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• the volume of such complaints to rms, and their uphold rates, do not justify separate rules
and guidance dealing with them
• the McWilliam decision is primarily concerned with issues of duciary duties (albeit the
facts involved the sale of PPI) and so can be differentiated from the key points which our
proposed rules and guidance in CP15/39 seek to address
• it would be dangerous to make generic rules based on individual cases, especially those of
questionable value as precedent based on their individual facts, quality of argument and
quality of reasoning; McWilliam was not fully argued and contested and has not set a clear
precedent and decision in the same way as Plevin
5.133 However, some responses from industry felt that our proposed approach did not go far enough:
• our stated intention to keep the case law under review and revisit the question in the future
if necessary creates unhelpful uncertainty
• we should also exclude from DISP App 3 other known court cases involving s.140A and PPI,
to bring certainty and help the PPI issue to an orderly close
• we should exclude duciary duty complaints about PPI from DISP entirely, as they require
detailed analysis of the parties’ relationship, roles and expectations that is best undertaken
by the courts
5.134 Some responses from CMCs and consumer bodies agreed with our proposed approach to
McWilliam. Others, however, argued that McWilliam-type PPI complaints:
• Should be included in DISP App 3 because:
–
This would provide more clarity for rms and potential complainants.
–
The courts’ key reason for deciding in favour of the consumers in both Plevin and
McWilliam was the lack of transparency caused by non-disclosure of commissions in
the sale of PPI. While the legal remedies may be different in the two cases, the rationale
in McWilliam is too similar to that in Plevin to justify our proposing to deal with it
so differently.
–
McWilliam-type complaints should benet from the same scrutiny we propose for Plevin
complaints at Step2.
–
The remit of the Financial Ombudsman Service is not restricted to mirroring available
legal remedies and has the broader remit of considering what is fair and reasonable.
• Should not be included within the scope of our proposed deadline because:
–
The McWilliam case is very recent, other issues raised in the case are yet to be decided,
there will be satellite litigation, and the scope of the issues are complex and uncertain.
So it is unreasonable to impose a two year deadline on these kinds of PPI complaints,
and we provide no justication for proposing to do so.
–
It would be inconsistent to apply a deadline to a type of PPI complaint which lacks
any specic agreed set of rules and guidance for its assessment. If they are not to be
included within the scope of DISP App 3, they should not be caught by the deadline.
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Our response
We have carefully considered these points but do not consider that we need to
change our proposed approach in light of them.
Given the complexities of assessing a McWilliam-type complaint, and the fact
that the legal remedy for such a complaint would be different from those of
our current DISP App 3 rules and guidance for PPI complaints, we remain of the
view that they are best treated outside of DISP App 3.
We are not saying, and do not consider that it would be appropriate to say, that
McWilliam-type complaints about PPI do not need to be handled and assessed
fairly under DISP. We are merely saying that we do not consider that the issues
and case law are currently clear or stable enough to warrant or enable us
to make specic rules and guidance about how to handle complaints about
those issues.
We will continue to monitor further litigation in the wake of McWilliam, just as
we monitor any litigation of potential signicance to nancial services. We do
not agree that this stance creates uncertainty or of itself raises the prospect of
further future change in our proposed rules and guidance.
Complaints raising McWilliam-type issues could, in principle, be made about
many PPI sales. Consequently, excluding such complaints from the scope of
the proposed deadline would materially undermine the certainty and orderly
conclusion which we believe the proposed deadline and communications
campaign would bring. The proposed communications campaign would prompt
consumers to consider their position, and they would have a significant period
of time before the deadline in which to complain about mis-selling, undisclosed
commission, or McWilliam-type issues. And after the deadline, they would
remain able to raise these issues in claims in court.
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6.
Next steps
Further consultation on our proposed package of measures as amended
6.1 In this publication we have:
• considered in detail the feedback we received in response to CP15/39
• set out our views of this feedback in response
• highlighted aspects of the package of measures that we now propose to amend
6.2 In addition to our specific consultation questions in Chapter 5 above, we also invite further
comments on the whole package of measures, as amended. In particular, we ask:
Q22: Do you consider that, taken as a whole, our proposed
package of measures – the proposed deadline rule,
proposed consumer communication campaign,
proposed fee rule, and proposed rules and guidance
(as amended) concerning PPI complaint handling and
Plevin - is a justied, appropriate and proportionate
response to past PPI mis-selling and present trends in PPI
complaints handling?
6.3 Please provide feedback by 11 October 2016.
6.4 We will then consider the comments we receive (alongside previous comments where
respondents indicate that they maintain them), complete our deliberations and decide whether
or not to proceed with our proposals.
Commencement of our proposals
6.5 In CP15/39, we proposed that if we went ahead:
• the deadline rule, the communications campaign fee rule, and the rules and guidance
concerning PPI complaints and Plevin, should come into force on the same date, in 2016
• the communications campaign should begin soon after that date
• the deadline should fall two years after that date, in 2018
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6.6 Some responses from industry said there should be no delay between the rules being made,
their coming into force, and the launch of the communications campaign, including an
immediately and fully operational website and helpline. These responses felt that a delay would
leave space for alternative messaging from CMCs, and push too far into the future the deadline
date and the certainty it would bring.
6.7 Other responses from industry, however, said that there should be an adequate lead time
between the rules being made and their coming into force, so that no operational problems
arise in the early part of the deadline period and erode the time consumers have to act. They
suggested, for example, that this would allow the FCA time to consider technology and other
solutions to support the campaign.
Our response
We have carefully considered these responses, and also other considerations.
If we decide, following this further consultation, to proceed with our proposals,
we now propose that:
• The rules and guidance concerning the deadline, the fee, and PPI complaints
handling and Plevin would be made on the same date, by the end of
December 2016.
• The Plevin rules and guidance and the fee rule would come into force around
3 months later, by the end of March 2017. This is to allow rms time to
prepare for and implement them. The rst half of the fee would be collected
from relevant rms around a month after that, in April 2017.
• The deadline rule would come into force around 6 months after it was made,
by the end of June 2017, with the consumer communications campaign
starting at the same time. This timing is to allow us to ensure that signicant
expenditure necessary for campaign production and advance media booking
takes place only after the deadline rule is made. We consider that it would
not be responsible or a good use of our resources to spend signicant sums
on this, out of our general fee revenue, before we had made a decision
about whether or not to proceed with a deadline and our other measures.
• The deadline would fall two years after the deadline rule came into force, by
the end of June 2019.
We accept that a deadline in June 2019 is further off than we had envisaged
in CP15/39 and than some stakeholders at least would prefer. However, we
consider that our proposed timings, in particular the 6 month lead time to the
start of the deadline period and communications campaign, would strike an
appropriate balance between progressing the proposed measures and ensuring
that we, rms and other stakeholders, including our partners, have time to
prepare for and implement our respective actions in support of the campaign.
However, this proposed timetable is subject to a number of variables.
For example:
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• whether we can decide by the end of December 2016 about whether
to make rules and guidance will depend on the extent and nature of the
feedback we receive in response to this further consultation
• some stakeholders have previously publicly declared that if we make rules
and guidance along the lines proposed in CP15/39, then they are likely to
challenge these in court
Given the significance of our proposals and their potential timings, we will issue
prompt updates if we become aware that we are likely to depart from the
proposed dates set out above.
Looking further ahead
6.8 During our further consultation, and until any final rules and guidance on PPI complaints and
Plevin come into force, it will remain open to firms under our existing rules (DISP 1.6.2R(2)) to
explain to complainants that they cannot provide a final response for those complaints that
could be affected by our proposed rules and guidance on Plevin. If these rules and guidance
then come into force, we would expect firms to provide fair, swift final responses to those
complaints they had put on hold.
6.9 In the periods before and after our proposed package of measures came into force, we would
take forward the robust proactive supervisory engagement with firms described in Chapter 3.
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Annex 1
Further consultation questions
Concerning our proposed rules and guidance on PPI complaints and Plevin:
Q19: Do you agree with our proposed modications of
incorporating anticipated prot share sums within our
approach to assessing fairness and actual prot share
sums within our approach to redress? Do you perceive
any particular practical or operational difculties with
this modied approach?
Q20: Do you agree with our proposed clarications that rms
should presume that the failure to disclose gave rise
to an unfair relationship where the anticipated prot
share plus the commission reasonably foreseeable at the
time of the sale were more than 50%, but then calculate
redress on the basis only of those periods where the
actual level of commission and prot share together was
more than 50%?
Q21: Do you agree with our proposed modication of
allowing rebates to be reected when calculating
redress at Step 2?
Concerning our proposed package of measures as a whole:
Q22: Do you consider that, taken as a whole, our proposed
package of measures – the proposed deadline rule,
proposed consumer communication campaign, proposed
fee rule, and proposed rules and guidance (as amended)
concerning PPI complaint handling and Plevin - is a
justied, appropriate and proportionate response to
past PPI mis-selling and present trends in PPI complaints
handling?
Concerning our updated EIA:
Q23: Do you have any comments on our assessment of
the impacts of the proposals on protected groups or
vulnerable consumers? Do you have any comments on
the proposed mitigations we are taking forward?
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Annex 2
List of non-confidential respondents
Adam Samuel
Alliance of Claims Companies Ltd
Allixi
um Ltd
Andrew Palmer
Association of British Credit Unions Ltd
Assurant Group Ltd
Black Lion Law LLP
British Credit Trust Holdings Ltd
Building Societies Association
Coventry Building Society
Credo Claims Ltd
CT Capital Ltd
David Brotherston
FCA Practitioner Panel
Flairford Securities Ltd, trading as Brunel Franklin
Gladstone Brookes Ltd
Graham Richardson-Smith
Green Light Legal Solutions Ltd
Jonathan Egan
Legal Ombudsman
Manchester Outsourcing Ltd
August 2016
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Maple Claims Ltd
McGinness Associates Ltd
Michael Turnbull
Miller Gardner Ltd
Money Advice Trust
Money Management Team Ltd
MoneySavingExpert.com Ltd
National Association of Citizens Advice Bureaux, operating as Citizens Advice
National Franchised Dealers Association
Neil Jeffares
Oracle Legal Ltd
Professional Finance Claims Association
Quickly Finance Ltd, trading as Fast Track Reclaim
Synergy Financial Solutions Ltd
The Consumer Council
The Finance and Leasing Association
The Financial Services Consumer Panel
The Information Commissioner’s Office
The Money Charity (registered Charity 1106941)
Tony Beaven
We Fight Any Claim Ltd
West Bromwich Building Society
Which? Ltd
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Annex 3
Equality Impact Assessment (EIA)
Introduction
1. We are required under s.149 of the Equality Act 2010 (The Act) to have due regard in the
exercise of our functions to the need to:
• eliminate discrimination, harassment, victimisation and other conduct prohibited by ‘the Act’
• advance equality of opportunity between people who share a relevant protected
characteristic and those who do not
• foster good relations between people who share a relevant protected characteristic and
those who do not
2. The relevant protected characteristics which we are required to consider are:
• age
• disability
• gender reassignment
• pregnancy and maternity
• race
• religion or belief
• sex
• sexual orientation
• marriage or civil partnership status
38
38 In relation to the elimination of discrimination, harassment, victimisation and other prohibited conduct, but not the
advancement of equality of opportunity, or fostering of good relations.
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3. We also consider that our consumer protection objective requires us to consider the position of
vulnerable consumers.
39
In CP15/39 we set out our initial EIA. Our main initial conclusions about
our proposed deadline and consumer communications campaign were that the proposals could
present a greater risk of adverse impacts to some vulnerable consumers (in particular, those
who have limited fluency in reading, writing or speaking English) and some protected groups,
including those who are much older and those who have serious physical or mental health
conditions. However, we could mitigate these potential adverse impacts by ensuring that the
proposed consumer communications campaign is as inclusive as possible so that messages
get through to and engage vulnerable consumers and those in such protected groups. We
proposed a programme of appropriate partnership activity, in addition to traditional marketing
channels, to help us achieve this.
4. Our main initial conclusions about our proposed rules and guidance about Plevin were broadly
similar. We recognised that undisclosed commission issues are likely to be quite difficult for the
average consumer to understand, and harder still for many consumers who are vulnerable, for
example because of limited fluency in English, or who have particular protected characteristics
such as learning disabilities. We also noted the provisions in our current and proposed rules and
guidance which, together, have the effect of generally expecting firms to consider the issue of
undisclosed commission when assessing complaints about relevant PPI sales. This is the case
even if the issue is not explicitly raised on the face of the complaint.
We asked:
Q17: Do you agree with our initial assessment of the impacts
of our various proposals on the protected groups and
vulnerable consumers? Are there any other potential
impacts we should consider?
Feedback received
5. Most responses from industry agreed that:
• we had identied key protected groups and vulnerable consumers and given a reasonable
assessment of the impact of our proposals on them
• there could be a risk of adverse outcomes for some if these characteristics and vulnerabilities
are not taken into account in designing communications
• using a wide range of methods to raise awareness of the deadline would give the best
possible chance that vulnerable customers will be made aware of it
39 It is one of the FCA’s objectives to secure an appropriate degree of protection for consumers. The FCA must have
regard to “the differing degrees of experience and expertise that consumers may have” (Financial Services Markets Act
2000, 1C). This acknowledges that different types of consumers may need different treatment. The risk of detriment
from a failure to address vulnerability is high, so this clearly falls within the regulator’s consumer protection objectives.
As the FCA’s research
shows, the impact of vulnerability on everyday life should not be underestimated. “Vulnerability
is often characterised by a range of emotional and practical consequences that impact people’s ability to deal with
their finances and interactions with firms. Detriment could take many forms including emotional aspects such as stress
and anxiety; financial detriment arising from sub-optimal or reduced choices, a debt spiral, or inappropriate purchases;
and wasted time spent in resolving issues. A negative and unfair experience with a financial service can have a
disproportionate effect on people in vulnerable situations, often making a difficult situation worse” FCA Occasional
Paper No. 8 Consumer Vulnerability (February 2015).
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6. Some of these responses from industry also suggested, variously, that:
• the campaign’s detailed design would be crucial in mitigating adverse impacts
• we were welcome to explore and share rms’ own approaches to dealing with more
vulnerable or less engaged customers
• those who were older at the time they bought PPI should be included as a group of
vulnerable consumers
• we should consider digital exclusion when creating the communications campaign and
partnership programmes, as older and disabled people form a large proportion of those
who are ‘digitally excluded’
• we should add rules and guidance that guide rms to treat fairly any vulnerable or
disadvantaged customers, taking into account their specic circumstances
• we should consider how vulnerable customers can be protected from inappropriate targeted
approaches from certain CMCs
• vulnerable consumers’ understanding of ‘undisclosed commission’ was important and
would need to be given further consideration once we had set out our initial proposals for
how the issue will be addressed in the communications campaign
7. Some responses from consumer bodies and CMCs, however, made various criticisms of our
assessment, saying that:
• we should carry out a fuller EIA, based on more thorough research focused on protected
groups and vulnerable consumers
• several groups with protected characteristics are on lower-than-average incomes and so
more likely to have taken out credit and been mis-sold PPI
• we underestimated the impact on older people and those with long term health conditions,
who were most often mis-sold PPI they could not benet from
• consumer vulnerability, or being disadvantaged by a deadline due to a protected characteristic,
should be regarded as an exceptional circumstance that allows a complaint to be assessed
after the deadline has passed
• we should give deeper consideration to consumers who are particularly vulnerable due
to nancial unsophistication and/or complex debts and who may be impacted in more
fundamental ways that cannot be mitigated through a broad communications campaign
• we risk harming vulnerable consumers if our campaign puts them off using CMCs but they
lack the condence to complain directly or cannot do so effectively, so they should be given
the option of using a regulated CMC
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Updated EIA
8. Following the feedback to CP15/39, and having carefully considered it, we have:
• Commissioned equality and diversity consultants, GCL, to provide a report on the potential
impact of the proposals set out in CP15/39 on protected groups and vulnerable consumers
(published alongside this publication).
–
GCL undertook an extensive review of the evidence on protected groups and vulnerable
consumers. This assessed nancial condence, propensity to complain about nancial
products and PPI in particular, and any specic barriers to engagement or complaining
that should be considered in the context of the proposed consumer communication
campaign and the PPI complaints process.
• Taken advice from GCL, communication consultants Multicultural Marketing Consultancy
(advising specically on black and minority ethnic audiences) and BDS Communications
(advising specically on disabled audiences) in relation to testing the advertising concepts.
• Completed testing of the advertising concepts with specic protected groups and vulnerable
consumers. The approach included direct in-depth individual interviews, focus groups and
speaking to advocates who represent and support those protected groups.
• Received feedback and recommendations directly from protected groups and vulnerable
consumers, their advocates and our consultants on how the proposed campaign should be
adjusted to best reach and engage those audiences.
• Carefully considered the GCL report and its ndings and the extent to which we are able
to implement the recommendations in the report when deciding whether to take our PPI
proposals forward.
9. As a result of this further work, we have updated our EIA as set out below.
Analysis
10. We considered the three areas to which it is necessary to have due regard under section 149
in relation to each protected group. We also considered the position of a broader category
of vulnerable consumers. While we did not find any evidence of harassment, victimisation or
anything relevant to the fostering of good relations, we did identify that our proposals have
the potential to result in less favourable outcomes for some protected groups and vulnerable
consumers.
11. We identified that there are particular reasons why belonging to certain protected or vulnerable
groups makes some consumers less able to understand or less willing to act upon our proposed
communications campaign. This means there is a greater chance of such consumers not having
considered whether they would like to complain about their PPI policy (concerning mis-selling
and/or based on Plevin) before the deadline expires.
12. The particular groups our research shows may be disadvantaged by our proposals are:
• older people (particularly those aged over 65 and even more so for those over 75)
• women
• black and minority ethnic (BAME) groups (particularly those with English as their
second language)
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• disabled consumers, with mental health problems, learning disabilities, cognitive and/or
sensory impairments; and
• vulnerable consumers on low incomes with low nancial condence
13. Given the evidence on age and cognitive impairment, we also identified a need to ensure that
the proposed campaign engages people who care for older or disabled people. We consider
how best to target carers below.
14. As a result of this analysis, and where we identified there could be an adverse impact, we
have developed mitigations and actions that we will take forward when designing the
communications campaign. We have already undertaken some of these. We set out the
analysis, proposed actions and conclusions in terms of our proposals for each of these groups
below. Further, we consider below whether any amendments to our proposals could be made
which would put protected groups and vulnerable customers in a better position.
Age
15. We have not identified an adverse impact for younger and middle aged groups due to their
high internet usage and higher propensity to complain. Therefore, we do not consider them
further in this EIA.
16. We have identified evidence that those aged 65 or over could be adversely impacted by the
proposals. This is because of lower financial capability, knowledge and confidence and lower
levels of usage of the internet, particularly as a significant amount of information about PPI is
internet-based. The issues become more significant for those aged over 75 as financial skills
and proficiency can often decrease which can make complaining even more difficult. We also
identified cold calling as an issue. Any increase in cold calling as a result of the proposed
deadline could have a more significant impact on older people, who are more likely to have
land lines and be at home during the day. There are 11.6 million people aged 65 or over in the
UK and 5.5 million people aged 75 or over so the proposals could have a significant impact on
this group.
17. Our view is that the large scale communications campaign and deadline we propose would
be likely to have both positive and negative impacts on the over 65 and over 75 age groups.
The campaign will raise awareness of the issue of PPI through a trusted source, making it more
likely that consumers will consider whether to make a complaint before the deadline. Many
consumers over the age of 65 may not have considered, for example, whether they were sold
PPI before, so we view this as a considerable positive impact which, without a deadline and
campaign, would likely not have occurred.
18. However, unless we can be confident that the campaign will be effective, we recognise that
consumers in these age groups are at risk of being disadvantaged by the imposition of a
deadline, as well as possibly suffering an increase in cold calls. There are a number of steps that
we will take to ensure that consumers in these age groups are reached by the campaign equally
as well as younger consumers so that any disadvantage they might otherwise suffer as a result
of our PPI proposals is eliminated, or at least minimised to a level where we can be confident
that it is reasonable and justified to proceed.
19. We have already taken the following steps in preparation for the potential campaign:
• Following our consideration of the evidence on internet usage we have decided that the
Freephone helpline number should appear on all of the above the line advertising, i.e. TV
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adverts, posters etc. This will ensure that older audiences who are less likely to use the
internet have a clear route of contacting us to obtain further information about PPI.
• We tested our four advertising concepts with groups aged over 65 and over 75 to get their
feedback and to give us condence that the advertising concept we select will resonate
well with these audiences. This included testing directly through group and individual depth
interviews and with advocates who support consumers in these age groups.
• We have had initial discussions with our independent channel planning and media buying
agency about how best to target audiences over the age of 65 and 75.
• We contacted the Information Commissioner’s Ofce (ICO) to explain our concern that our
proposals could lead to an increase in cold calling during the proposed two year period
before the deadline falls. The ICO has conrmed that it is willing to work with the FCA and
Claims Management Regulator and will consider:
–
issuing targeted communications at various points during the proposed PPI
communications campaign to remind consumers of their rights
–
reminding companies of their duties under the Privacy and Electronic
Communications Regulations
–
working with partners in order to ensure that consumers most likely to be impacted are
aware of their rights and how to exercise them
• We have approached a number of organisations that support older people to get an
expression of interest that they would be willing to partner with us during the proposed
campaign.
20. There are a number of further mitigations we will implement if the proposals proceed. These
include:
• Reviewing the proposed channel plan which will be created by our media buying agency to
ensure there is appropriate targeting of older audiences.
• Seeking to secure editorial coverage, for example a discussion, report or phone-in about
PPI and which is not paid for advertising, with non-commercial radio stations. This would
increase awareness of the deadline as the evidence demonstrated this is a key channel for
those aged over 55.
• Exploring with potential partner organisations that support older people the ways in which
they could support the proposed campaign. This mitigation reects specic evidence we
considered about the need to adapt communications appropriately.
• Considering as part of our partnership strategy whether there are other organisations such
as charities, local authorities, national sports organisations, national and regional health
bodies and/or those involved in social care that we might want to carry the proposed
campaign messages.
• Testing PPI website content either directly with older people and/or with partners supporting
older people to ensure that it is easy to understand for consumers in these age brackets
who do use the internet.
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• Monitoring these groups via quantitative research and through feedback from partners
against the campaign objectives, for example, awareness and understanding, to identify
any issues and make changes where necessary.
Women
21. The evidence we have identified shows that men are slightly more likely to have held PPI, but
are also more likely to have complained already. Women in the UK appear less likely than men
to complain due to slightly lower financial knowledge and familiarity. This disparity is larger
than for other countries for which we have evidence. In mid-2015, the UK population consisted
of 33 million (50.7%) women and 32 million (49.3%) men so this is a potentially large audience.
22. While our view is that the large scale proposed communications campaign will be effective
at reaching women we will also implement further actions in order to either eliminate any
disadvantages, or minimise them to a level where we can be confident that it is reasonable and
justified to proceed with our PPI proposals.
23. We have already:
• Tested the advertising concepts with women-only groups, drawing out particular feedback
from women in different age groups, i.e. those over 65 and 75 as identied above. We have
taken account of this feedback and we plan to specically re-test the preferred concept
with women, as part of our second phase of testing.
• Held initial discussions with our independent channel planning and media buying agency
about how best to target women.
24. There are a number of further actions we will implement if the proposals proceed. These
include:
• reviewing the proposed channel plan created by our media buying agency to ensure there
is appropriate targeting of women
• ensuring agencies consider where advertising is placed and that targeting for the overall
campaign is in proportion to female representation within the general population
• monitoring this group via quantitative research and through feedback from partners against
the campaign objectives, for example awareness and understanding, to identify any issues
and make changes where necessary.
Race
25. The evidence generally showed that many members of Black and Minority Ethnic (BAME)
groups have lower levels of financial knowledge which could impact their decision-making
on PPI. However, overall on PPI, rates of complaining to the Financial Ombudsman Service
appear consistent with the overall proportion of BAME people in the population as a whole,
which indicates that there may be little impact on decision making in relation to PPI. However,
language barriers for some, in particular for those with limited fluency in English, appear to
lead to lower levels of awareness and interaction with financial institutions.
26. While our view is that the proposed campaign is likely to have a generally positive impact in
raising awareness about PPI, we have taken and propose to take a number of specific steps
with BAME consumers in mind. These will ensure any disadvantages are either eliminated, or
minimised to a level where we can be confident that it is reasonable and justified to proceed
with our PPI proposals.
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Steps already taken:
• We instructed a communications expert, Mulitcultural Marketing Consultancy, with
experience of reaching and engaging diverse BAME audiences to advise on the planning
and production of the proposed campaign. In particular they highlighted the factors that
can hinder effective communication such as differences in culture, religion or language.
They also gave us valuable advice on potential partnership organisations.
• In deciding which BAME audiences to focus on for testing the advertising concepts we were
informed by the views of our consultant. As a result we took into account audience sizes,
English prociency, receptiveness to mainstream communications and evidence of nancial
awareness. We undertook testing directly and with advocate groups with these audiences
and took into account language and cultural issues.
• We tested the creative concepts with a range of BAME audiences to ensure that the nal
concept would be effective and to enable us to take account of any feedback received
• We have had initial discussions with our independent channel planning and media buying
agency about how best to target particular BAME audiences.
27. There are a number of further actions we will implement if the proposals proceed. These
include:
• reviewing the proposed channel plan created by our media buying agency to ensure there
is appropriate targeting of BAME audiences
• seeking to secure editorial coverage, for example a discussion, report or phone-in about PPI
and which is not paid for advertising, with key broadcast channels
• working with our communications expert to identify potential partner organisations and
working with such partners to explore ways they could support the proposed campaign,
including the provision of specic feedback about adapting communications. This would
include taking account of specic feedback about language barriers
• monitoring these groups via quantitative research and through feedback from partners
against the campaign objectives, for example, awareness and understanding, to identify
any issues and make changes where necessary
Disability
28. While many disabled people effectively manage their day to day affairs, evidence also showed
that many disabled people appear to have lower levels of financial confidence, lower awareness
of financial matters, less engagement with financial issues and a lower propensity to complain.
Specifically we identified that:
• there is clear evidence that there is lower nancial condence amongst many people with
mental health issues
• the process of complaining could be more difcult for those with a visual impairment due
to inaccessible formats, lower internet usage levels and the potential need to review historic
information when considering making a PPI complaint
• the particular service offered via our helpline may not be helpful for people with hearing-
impairments
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• cognitive issues which impact on memory were likely to have an impact on nancial
capability and complaining about PPI and that a high percentage of this group may be
supported by a friend, relative or carer
29. Our view is that, provided we put appropriate mitigations in place, our proposed large scale
campaign will be likely to have a positive impact on disabled consumers as a whole. Many of
these consumers may not previously have considered, for example, whether they had PPI or
whether they may have paid high undisclosed commission on a PPI policy. The majority of
disabled consumers use mainstream channels and the internet and so will be reached and
impacted by our advertising and campaign in any event. However, there are specific mitigations
that we propose to put in place to ensure any disadvantages are either eliminated, or minimised
to a level where we can be confident that it is reasonable and justified to proceed with our PPI
proposals.
30. Given the evidence identified, we have already taken a number of steps:
• Instructed a communications expert, BDS Communications Limited, with experience
of reaching and engaging these audiences to advise on planning and producing the
proposed campaign.
• Tested the creative concepts both directly with consumers and with a range of advocates
that support the groups identied above. These included cognitive impairments, learning
disabilities and sensory impairments. This is to ensure that the nal concept will be effective
for these audiences and to enable us to take account of any feedback received when
rening the preferred concept.
• Obtained feedback from advocates about adapted communications which we will take
forward when designing and testing the campaign materials.
• Obtained expressions of interest from a number of organisations that support disabled
people and who would be willing to work with us to support the proposed campaign.
31. Having reviewed the mitigations recommended by GCL in this area we will also take the
following steps if the proposals proceed:
• Re-test
40
the preferred advertising concept with those with cognitive impairments to address
any specic issues with its execution
• Ensure all our communication is inclusive in terms of language, formats and imagery and
that they meet appropriate accessibility standards
• Our website is already tested by an independent agency with users who have a range of
visual, hearing and cognitive impairments (including learning disabilities). The FCA website
is developed and tested in order to meet Web Content Accessibility Guidelines (WCAG
41
)
AA standards of accessibility. The accessibility of the FCA website is evaluated independently
on an annual basis to WCAG standards (industry best practice standards). The PPI specic
website content will be tested to the same standards and with a range of users ahead of
40 We have shared the specification for the re-test with our consultants who support the approach being taken.
41 Web Content Accessibility Guidelines (WCAG) is developed through the W3C process in cooperation with
individuals and organisations around the world, with a goal of proving a single shared standard for web content
accessibility that meets the needs of individuals, organisations, and governments internationally. The WCAG
documents explain how to make web content more accessible to disabled people.
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campaign launch. While we complete an annual review of our website we will arrange a
specic test for this content to take account of the issues identied in this EIA.
• Explore publishing a reasonable adjustments statement and process on our website
• Provide specic training on accessibility to our helpline staff who give information about
PPI. This includes not speaking too quickly, being prepared to repeat or rephrase, giving the
caller time to explain fully, not assuming the caller can see and read and how to receive a
call via the text relay service.
• Explore with potential partner organisations who support disabled people how they could
support the proposed campaign and take on board any specic feedback about adapted
communications or alternative formats.
• Monitor disabled people via quantitative research and through feedback from partners
against the campaign objectives, for example awareness and understanding, in order to
identify any issues and make changes where necessary.
32. There are some suggested mitigations that we have concluded may need to be taken forward
in a slightly different way to the way recommended by GCL. We set out below how we will
address these recommendations:
a. to consider utilising the Browse Aloud facility
–
The use of Browse Aloud was considered by our Equality and Diversity Committee, who
accepted the recommendation to allow users to use their preferred screen reader or
tools embedded in their device’s operating system, rather than impose a solution that
they have to download and install.
–
This means users are able to use a program they are comfortable with already, and the
site will be accessible to multiple devices, browsers and operating systems. By aligning
to AA standards, the website is accessible for screen reader software.
–
Our approach is consistent with the approach of the RNIB and GOV.uk. GCL has
conrmed that they do not believe users are likely to be at a disadvantage using other
systems as opposed to Browse Aloud.
–
In terms of translation services, we currently have the facility to translate on request and
will consider whether to translate key PPI pages based on demand and feedback from
partners.
b. online communications should continue to follow the WCAG AA standards with a longer
term aspiration to reach AAA.
–
When re-designing the FCA website recently, our Equality and Diversity Committee
considered whether we could aim for AAA standard. A decision was taken that it would
not be reasonably practicable to fully achieve AAA standard at this time for various
reasons, including for example that it would reduce the capability of the website by
removing some interactive technologies that mainstream users nd useful. We are
aiming to meet some of the criteria for AAA but we will review the position annually.
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c. actively investigate the feasibility of having an accessibility tab at the top of every web page,
which also provides information for those less competent with the internet and those with
English as a second language.
–
We already have accessibility information on our main FCA website, however we
anticipate that the advertising campaign will direct consumers to a specic PPI hub with
its own website address (url). We will seek to include accessibility tabs on the PPI hub
and will test the impact on users as part of our testing of the PPI website pages. We will
also take account of feedback from partner organisations.
d. provide information about accessible methods for contacting us about PPI on the main
contacts page.
–
As above, we anticipate there will be a PPI hub which will have its own website address
and the campaign advertising will signpost consumers there as a rst port of call. We
intend to publicise PPI on our main website to coincide with campaign ‘bursts’, for
example in the news feed.
e. ensuring all our campaign communications are available in the full range of accessible
formats specied in government guidance.
–
We already provide consumers with a full range of accessible formats on demand, and
will aim to do so with the PPI campaign materials (so far as is reasonably practicable
once the materials have been nalised). We will keep this under review, take account of
advice from partners and make changes if we consider it necessary.
f. consider providing specic materials for people with hearing impairments such as a British
Sign Language interpreted video and subtitled information in relation to PPI
–
We already provide specic materials for people with hearing impairments, such as
captions. We will consider whether further alternatives are reasonably practicable as
the campaign materials are developed, and get the input of our partners who support
people with hearing impairments.
–
Although in a few cases it is not reasonably practicable to adopt every aspect of the
specic recommendations set out in the GCL report, our view, which is supported by
GCL, is that the package of mitigations we intend to introduce as set out above is likely
to achieve equivalent outcomes and so will nevertheless eliminate any disadvantage or
alternatively minimise it to a level where we can be condent that it is reasonable and
justied to proceed with the PPI proposals.
Other groups considered
33. Other groups we considered were:
• lesbian, gay, bisexual and transgender (LGBT) consumers
• pregnant consumers / recent mothers
• consumers who hold a particular religion or belief
• marital status
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34. In relation to pregnancy and maternity, religion and belief and marital status, we have not
identified any specific and robust evidence or information about poor financial confidence or
propensity to complain. Therefore, we do not propose to put in place specific actions for these
groups in the proposed communications campaign strategy. Our view is that the mainstream
communications will be effective at reaching and engaging people with these characteristics.
35. For LGBT consumers we only identified limited evidence. However, this highlighted that an
LGBT customer considering making a complaint may be more confident in doing so if certain
improvements are made to the customer experience. For transsexual consumers we identified
that a PPI deadline may create disadvantages because of the process of identification in the
course of the PPI complaints process, connected to changing name.
36. As a result we intend to:
• explore with Stonewall whether any other specic training for helpline and/or front-line
staff should be provided
• get more information about the PPI complaints process and transsexual people to identify
any specic logistical issues or barriers about verication of identity that they may face
Low incomes and low nancial condence
37. Our evidence identified that low income could be more likely to make someone vulnerable and
impact their likelihood of complaining as a result of lower financial confidence. As such, our view
is that there could be a potential adverse impact on this group. To address this we have tested
the creative advertising concept with this group and we have obtained expressions of interest
from a number of advocate organisations to support the proposed campaign. This includes,
in particular, supporting those consumers who might be experiencing financial difficulty. Our
tracking research is also being designed to ensure we can specifically track this group against
the campaign objectives in order to identify issues and make changes if necessary.
Carers
38. None of the responses to CP15/39 specifically highlighted carers. However, given the evidence
on age and disability we believe it will be important to reach and engage with this audience.
We will need to ensure that the proposed campaign is clear and understandable and presents
the importance of making a decision rather than pressuring them to complain.
39. The evidence we obtained confirmed that carers consume media in the same way as
mainstream audiences but are more likely to experience pressure on their time. Therefore, our
view is that the proposed mainstream campaign will be effective at reaching this audience.
However, we have taken steps to ensure this audience is engaged, for example, we have tested
the advertising campaign with a relevant advocate organisation and obtained expressions of
interest from relevant organisations to support the proposed campaign.
40. We will continue to explore in more detail the ways in which partners could support the
campaign. We also intend to consider ways in which we can reach this audience such as specific
publications or networks, and whether we can create specific tools to provide information
quickly to this audience.
Alternative options
41. As part of the process of developing this EIA, we considered whether any amendments to
our proposals could be made which would put members of protected groups and vulnerable
consumers in a better position, whilst still advancing our operational objectives of securing an
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appropriate degree of protection for consumers and protecting and enhancing the integrity of
the UK financial system. We considered:
• whether members of protected groups and/or vulnerable consumers should be exempt
from the proposed deadline
Our view is that to exempt these groups from the deadline altogether is not a
practical alternative for several reasons, including:
–
membership of certain protected groups and vulnerability are not static so it would be
difcult for rms to know whether people fall or fell into such groups for some or all of
the time since the deadline expired
–
the Financial Ombudsman Service already allows complaints to be considered outside of
applicable time limits where there are ‘exceptional circumstances’
42
–
the potential negative impacts of the campaign identied in our EIA (e.g. increase in
cold-calling) may be exacerbated for vulnerable or protected groups for a longer period
if they were not subject to the deadline
–
it is unlikely that we would achieve our aim of bringing the PPI issue to an orderly
conclusion, reducing uncertainty for rms about long-term PPI liabilities and helping
rebuild public trust in the retail nancial sector
• whether the deadline should be extended to longer than two years (either generally or for
vulnerable consumers and those in protected groups)
42. We considered whether we could run a communications campaign without any deadline in
CP15/39.
43
We maintain that without the focus of a deadline, the campaign will be unlikely to
prompt as many consumers, including those in protected groups or vulnerable consumers, to
consider whether to make a complaint. We also considered a three year deadline in CP15/39.
44
We maintain that two years is the optimal period in which to deliver our objectives and have not
identified any evidence that suggests that our proposed mitigations cannot be implemented within
a two year timeframe. Two years will give us sufficient time to assess and monitor the impact of
the campaign, including the impact it is having on protected and vulnerable groups. In our view,
our advertising campaign alerting consumers to the deadline would lose impetus and impact if the
deadline were further away, which would risk undermining a key objective of tackling consumer
inertia.
• whether rms should be compelled to write letters to certain groups
43. We considered this option generally in CP15/39.
45
We maintain that there are problems faced
by firms in implementing such a proposal for all consumers and, based on the data gaps firms
have told us of, it is unlikely that they would have sufficient information about which of their PPI
sales were to members of protected or vulnerable groups to enable a targeted letter campaign.
In our view this exercise would risk inconsistent and potentially unfair outcomes. We take the
42 We also considered, in response to feedback received, whether consumer vulnerability, or being a member of a protected group,
should be specified as an exceptional circumstance. However, we considered that this would be too broad and as such it was
unlikely that we would achieve our aim of bringing the PPI issue to an orderly conclusion, reducing uncertainty for firms about long-
term PPI liabilities and helping rebuild public trust in the retail financial sector.
43
Paragraph 3.36.
44 Paragraphs 3.12 and 3.13.
45 Paragraph 3.38 onwards.
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view that implementing mitigations such as working with partners will be much more effective
in ensuring protected and vulnerable groups are not disadvantaged.
EIA overall conclusion
44. We have considered carefully:
• the feedback to the CP proposals which highlighted a number of protected groups and
vulnerable consumers that might be impacted as a result of the proposals in CP15/39
• the evidence and recommendations provided to us by our consultants
• the advertising testing feedback and recommendations from the protected groups,
vulnerable consumers and their advocates
• the mitigations that we are intending to put in place
• GCL’s views of whether the mitigations we propose to implement are enough to eliminate
any disadvantages, or alternatively to minimise those disadvantages to a level where we can
be condent that it is reasonable and justied to proceed with our PPI proposals
45. We have also considered whether two years remains the appropriate length of time within
which to implement all of the mitigations, and whether there are any alternative proposals
which would put protected and/or vulnerable groups in a better position.
46. Our conclusion is that with a two year deadline, provided we take the mitigating actions that
we have identified, the potential disadvantages identified in relation to each protected or
vulnerable group will be eliminated; or where they are not eliminated entirely they will be
minimised to a level where we can be confident that it is reasonable and justified to proceed.
This view is supported by GCL. As such our view is that we are justified in proceeding with the
proposals, taking into account the need to achieve the objectives set out in CP15/39 and the
fact that we do not think we could reasonably and proportionately achieve the same objectives
using alternative means.
Q23: Do you have any comments on our assessment of
the impacts of the proposals on protected groups or
vulnerable consumers? Do you have any comments on
the proposed mitigations we are taking forward?
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Annex 4
Cost benefit analysis of proposed PPI complaint
deadline, proposed consumer communications
campaign, proposed fee rule, and proposed rules
and guidance on handling PPI complaints in light
of Plevin
Introduction
1. In CP15/39 (Annex 2), we set out our assessment of the costs and benefits of our proposed
package of interventions as a whole. We explained that:
• for various reasons, the costs and benets of our proposed package cannot be reasonably
estimated (s.138I(8)(a) FSMA) or are not reasonably practicable to estimate (s.138I(8)
(b) FSMA)
• but the dynamics we discussed provided us with a reasonable basis for expecting that it
would deliver a net benet for consumers and other potential benets (as set out in the
table below)
• given the uncertainties involved, this overall conclusion was not guaranteed
Summary table of costs and benets of our proposed package in CP15/39
Firms Consumers Wider economy
Costs Increased redress
payments
Lost redress after deadline
Administrative costs of
complaint handling
Increased Ombudsman
service fees
Communications
campaign fee
Benets Reduced Ombudsman
service fees per
complaint involving
undisclosed commission
Increased redress receipts
Earlier receipt of redress
Saved time/effort in making
complaints involving
undisclosed commission
Reduced supervision costs
after the deadline
Reduced uncertainty
over PPI liabilities lowers
weighted average cost
of capital
Lower weighted average
cost of capital and efcient
corporate restructuring in
the retail nancial sector
lead to reduced prices of
nancial products
Reduced uncertainty over
PPI liabilities allows efcient
corporate restructuring in
retail nance sector
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2. We asked:
Q16: Do you have any comments on our cost benet analysis?
3. In this Annex, we discuss the main feedback we received and our responses. We also discuss
the impacts on our cost benefit analysis (CBA) of the changes to our proposals concerning
Plevin discussed in Chapter 5 above.
Feedback on the CBA and our responses
4. Generally, respondents’ views of our CBA broadly reflected their views of our rationale for
intervening and whether this was sound (see Chapter 2).
5. Among responses from industry:
• Most agreed with our CBA, saying variously that:
–
we had appropriately considered the material aspects of costs and benets and
conducted a fair and balanced analysis
–
our intervention may result in a higher volume of complaints but if this is an acceleration
of those that would have been raised anyway then it is welcome
–
redress and operational costs are likely to increase but will be proportionate to the
longer term benets and certainty that closure of the PPI issue will bring
• Some added that our CBA should also reect:
–
the costs to rms of recruiting and training additional staff to resolve higher
complaint volumes
–
the costs to some rms of running their own complementary consumer communications
alongside our campaign
–
the consumer benets in time and money from ending unsolicited CMC calls
• Some also warned that rms’ costs would be driven up if the nal rules and guidance, in
particular concerning Plevin, left open areas of uncertainty or discretion for rms and the
Financial Ombudsman Service.
Our response
The cost to rms of recruiting and training additional complaint handling
staff was considered in the CBA and is already reected in the table above as
increased administrative costs of complaint handling.
We note that some rms have committed to running their own voluntary
consumer communications alongside our proposed campaign, and that we
are also looking to agree voluntary commitments to provide a smooth and
efcient process for consumers who want to check about PPI or complain.
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These voluntary actions would incur costs for these rms but would also
bring benets to consumers to the extent they stimulate a greater volume of
complaints ahead of the proposed deadline. We have added our recognition
of these potential costs to our revised table below. We do not believe that this
affects our overall judgement on the CBA.
Our proposed interventions do not prevent CMCs from contacting consumers.
While such cold calling may reduce following a deadline on complaining, it could
increase in the period before the deadline (as our EIA has identied). Therefore,
we do not include any consumer benets from this in our assessment. We
note, however, that our proposed communications campaign, alongside rms’
voluntary communications, may lead to a greater proportion of consumers
complaining directly to rms rather than through CMCs.
When drafting rules and guidance, we aim to strike an appropriate balance
between clarity and an appropriate degree of prescription on the one hand,
and appropriate flexibility on the other.
6. Some responses from industry had expressed concerns about our proposed intervention and
said our CBA had significant gaps, including no costing of:
• the large, unplanned-for impact of increased PPI complaint volumes on rms’ costs,
resources and processes
• the severe operational and cash-ow strain this may place on smaller rms in particular and
the short term instability it will cause their funders and investors
• the potential collapse of some small and medium sized rms, who may not survive long
enough to gain the benets of longer term certainty
• the proposed rules and guidance on PPI complaints and Plevin
• the impact on rms who did not sell PPI but who are targeted by CMCs with ‘no PPI’ and
other spurious complaints and who will get even more of these now
Our response
As we explained in CP15/39, for various reasons, the costs and benets of our
proposed package could not be reasonably estimated or were not reasonably
practicable to estimate. So it is true that we have not estimated the costs of the
specic elements suggested by these responses.
However, the impacts on rms’ administrative costs in the period before the
proposed deadline from our proposed Plevin rules and guidance and the
potentially increased complaint volumes (including potential increases in ‘no
PPI’ complaints) are reected in our table above as increased administrative
costs of complaint handling.
Our CBA already included the recognition that in the short run there would be
increased uncertainty, including for small and medium sized firms, but that this
would be offset by longer term certainty. We have not added any potential costs
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that might arise in the scenario of a firm’s insolvency. We think this scenario is
too speculative. We say in Chapter 2 above that if firms find themselves in
difficulty when dealing with large volumes of PPI complaints, they can discuss
with us potential methods within the regulatory framework to manage these
pressures and avoid detriment to consumers or disproportionate consequences
for firms or the FSCS.
7. Some responses from consumer bodies who broadly supported our proposed intervention
nonetheless expressed concern that our CBA did not include the potential costs to those
consumers who:
• respond to increased CMC advertising and engage their services, but end up owing the
CMC money because their redress is used by their lender to pay down their arrears
• get caught by fraudsters posing as CMCs during the communications campaign
8. Conversely, some responses from CMCs who did not support our proposed intervention
expressed concern that we had not factored in likely losses to those consumers whom our
campaign persuades not to use a CMC. These responses felt that many consumers, particularly
those with common but complex circumstances (such as a chain of linked finance agreements
and PPI policies), will struggle to progress their complaint effectively and thus get less redress
than if they had used a CMC, including in some cases none at all.
Our response
Part of the rationale for our proposed package was that an FCA-led
communications campaign may empower consumers and encourage more of
them to complain directly to the rms concerned, rather than using CMCs
and other paid advocates, and therefore benet in full from the redress paid
out. As we set out in Chapter 3 above, we would be providing information
to consumers about the PPI issue and how they can assess their own position
and, where appropriate, how they can make their complaint. We would also
be putting in place a robust supervisory strategy to ensure that rms handle
complaints fairly, whether from CMCs or consumers themselves.
We do not think that getting caught by fraudsters is likely to be a common
scenario, as the proposed communications campaign will direct consumers to
the FCA’s website or helpline. These sources of information would explain to
consumers how to check if a CMC is authorised by the CMR.
Generally, consumers who use a CMC to complain on a ‘no win, no fee’ basis
will be better off than if they had not complained at all. That said, we recognise
that some consumers might end up indebted to the CMC if a lender uses the
redress it owes to the consumer to pay down their arrears. However, we think
that this is unlikely to be a common scenario. If it is a concern for an individual
complainant who may be in financial difficulty, they should raise it promptly
with their lender when it makes its redress offer, and ask it to use only the
redress that would remain after the CMC fee to pay down arrears.
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9. Most responses from consumer bodies and CMCs did not support our proposed intervention
and made a number of broad criticisms of our CBA:
• It was not detailed or helpful, with a surprising lack of any quantication, and little
consideration of a number of wider socio-economic costs and benets.
• It involves too many assumptions to believe that the deadline will work and achieve the
benets attributed to consumers or to the wider market.
• It admits that the costs and benets cannot reasonably be estimated and that the overall
conclusion cannot be guaranteed. With this level of uncertainty it would be unreasonable
and anti-consumer to proceed.
• It overstates the benet of reducing the shocks to rms’ cost of capital by gaining certainty
over their PPI liabilities. This is likely to be very small, given the level of shocks from PPI in
relation to all other potential shocks.
• It understates the negative impact on overall welfare of the fact that those rms that have
treated consumers unfairly will gain most from our intervention, at the expense of those
who tried to comply with the rules.
Our response
As we noted in Chapter 2, we were careful in CP15/39 to give a balanced
judgement and not go beyond what the evidence would support. For example,
we were cautious in saying that the nality and certainty of closure may also
indirectly support other potential benets by assisting consumers to reacquire
appetite for any improved, fairly priced and sold PPI or post-PPI debt protection
products, or stimulating innovation and the supply of these and corporate
restructuring in the retail banking sector (the main likely distributor of protection
products).
Overall, we appreciate that there is some frustration that we cannot provide
more certainty or quantitative detail about the potential costs and benets
associated with the proposed intervention. However, we remain of the view
that the dynamics we identied and set out in the CBA in CP15/39 provide
us with a reasonable basis for expecting that it will deliver a net benet for
consumers and other benets, albeit we recognise, given the uncertainties
involved, that our overall conclusion is not guaranteed.
As we said in Chapter 2, given that by the proposed deadline firms would have
been handling significant numbers of PPI complaints for a decade, and paid
many billions of pounds of redress, we do not see that it can reasonably be said
that we are rewarding firms for poor conduct, or incentivising them to behave
poorly in the future. If we find firms being slow to address any future misconduct
issues or redress, or otherwise being obstructive of what we consider to be fair
outcomes, we will take action.
10. Some responses from consumer bodies and CMCs further argued that we had not analysed the
relative costs and benefits compared to alternative interventions we might make, in particular:
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• the signicant additional administrative costs (for example from additional correspondence
with consumers and Financial Ombudsman Service fees) that will be incurred by rms under
the non-targeted complaints-led approach to Plevin, compared to those that would be
incurred through the use of a targeted s.404 scheme or the application of the root cause
analysis rules
• the signicant additional time costs to consumers of our complaints-led approach (in
completing complaints, dealing with CMCs etc.), as if their time is costless (unlike the
approach in other sectors’ CBAs, such as transport)
Our response
As is our normal practice, we have not conducted or set out similar cost benet
analysis for alternative approaches that we did not propose. The CBA was
conducted against the counterfactual of the status quo, which we consider the
relevant counterfactual in this situation. We are not required to assess a proposed
intervention against other possible interventions or counterfactual scenarios.
However, we did carefully consider alternative potential approaches before
putting forward our proposals in CP15/39, and discussed a number of them
there, including establishing a s.404 scheme or requiring rms to write to all
PPI consumers. We have discussed feedback on these alternative approaches in
Chapter 3 above. We remain of the view that our proposed approach of adding
a deadline, communications campaign, and rules and guidance on Plevin, to
our existing mainly complaints-led approach to PPI redress, is a reasonable and
proportionate intervention that can reasonably be expected to deliver a net
benet for consumers and other potential benets.
We do not regard consumers’ or complainants’ time as costless. We assessed
the proposed package against the relevant counterfactual, the status quo, in
which consumers also incur time costs of complaining.
11. Some responses from consumer bodies and CMCs said that in view of the uncertainties, the
CBA should be constantly reassessed throughout the two years before the deadline, which
should then be extended or abandoned if it is found that the costs are outweighing the benefits.
Our response
We are required to provide an assessment of costs and benets when we consult
on rules. We are not required to reassess those costs and benets subsequently.
However, as we set out in Chapter 3, we agree that it would be important to
measure the impact of our proposed communications campaign and deadline,
and evaluate and adapt our approach as necessary. Our evaluation framework
would use a wide range of KPIs that reflect our campaign objectives, which we
would monitor and track.
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The proposed changes and clarications of the proposed rules and guidance
concerning PPI complaints and Plevin
12. In CP15/39, we set out our analysis of the costs and benefits that would arise from our package
of proposals as a whole, including the proposed rules and guidance on Plevin. Here, we consider
the impact on that analysis of the changes and clarifications concerning Plevin proposed in
Chapter 5 above.
Including prot share
13. The proposed change of now including profit share in our approach would lead, relative to our
original proposals concerning Plevin, to more complaints meeting the criteria for redress at Step
2, and to more redress being paid for most of those complaints that would anyway have been
redressed at Step 2.
14. Accordingly, we estimate that, relative to our original proposals on Plevin, this modified
approach would lead to a significant proportionate increase in the redress that would be paid
at Step 2.
15. However, we estimate that this increase would lead to a much lower proportionate increase in
the total redress for PPI complaints as a whole (under Step 1 and Step 2). This is because:
• most PPI complaints (around three quarters) are currently decided and redressed at Step 1
anyway and we think this will largely continue in the future if we put in place our package
• redress at Step 2 (even as modied in our proposals in this further consultation) would be
paid in only a sub-set of that minority of all PPI complaints where the complaint was both
rejected at Step 1 (only around one quarter currently) and concerns a credit agreement that
falls in the scope of s.140A (which a large proportion do not)
16. We also note that the analysis of costs and benefits presented in CP15/39 was conducted on the
understanding that commission levels paid were on average around 67%. However, as noted
in Chapter 5, that figure in fact already reflected profit share arrangements. So, modifying our
proposals to now include profit share means that 67% remains the basis for expected redress
at Step 2, as we had assumed in our original consultation (although what happens in practice
for individual complaints will of course be affected by the particular commission and profit
arrangements that firms had in place for the policies complained about, which could be more
or less than this average).
17. The proposed change is likely to result in additional processing for firms when handling
complaints at Step 2 (such as modelling the anticipated profit share when assessing fairness
and, where necessary, the actual profit share when assessing redress), and thus some increase
in administrative costs for firms, relative to our original proposal in CP15/39.
Rebates
18. The proposed change of now allowing rebates previously paid to a consumer when they
cancelled their PPI policy to be reflected in redress calculated at Step 2 is likely to lead to
somewhat less redress in a small proportion of complaints at Step 2, compared to our original
proposal. However, we do not think this modification would significantly reduce PPI redress
overall, as this reduction would potentially occur in only a sub-set of that very small minority of
SPPPI complaints which are rejected at Stage 1 and which concern a credit agreement that falls
within s.140A (which many do not) and where the PPI was cancelled early.
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19. This proposed change concerning rebates is likely to result in additional processing for firms
when handling the small number of relevant complaints at Step 2 (such as modelling the actual
commission and actual profit share received in respect of the policy up to the point of its
cancellation), and thus some increase in administrative costs for firms, relative to our original
proposal in CP15/39.
Where commission or prot share rates vary
20. We consider that, relative to how firms may have understood our original proposal in CP15/39,
our proposed clarifications here concerning disclosure and redress where commission and/or
profit share rates vary during the life of the policy may result in additional processing for firms
when handling relevant complaints at Step 2 (such as, at the evidential stage, modelling and
assessing the reasonably foreseeable variations in commission and anticipated profit share and,
at the redress stage, modelling the periods when actual commission and actual profit share
were together over 50% and calculating redress on the basis of those periods) and thus some
increase in administrative costs for firms.
Other small amendments and clarications
21. We do not consider that the other small amendments and clarifications to the proposed rules
and guidance are likely to result in additional processing or administrative costs for firms when
handling relevant complaints at Step 2.
Conclusion on the proposed rules and guidance on Plevin, as amended
22. We do not consider that the proposed changes to the proposed rules and guidance on Plevin
would change the conclusion of the CBA in CP15/39.
Overall conclusion on CBA
23. In light of the foregoing discussion, we have made some changes to our original table of
costs and benefits, as set out in the revised version below. Overall, however, our assessment
remains that:
• for various reasons, the costs and benets of our proposed package of interventions cannot
be reasonably estimated (s.138I(8)(a) FSMA) or are not reasonably practicable to estimate
(s.138I(8)(b) FSMA)
• but the dynamics we have discussed provide us with a reasonable basis for expecting that
it will deliver a net benet for consumers and other potential benets, as set out in the
revised table below
• given the uncertainties involved, this overall conclusion is not guaranteed
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Summary table of costs and benets of our proposed package as amended
Firms Consumers Wider economy
Costs Increased redress
payments
Lost redress after deadline
Increased administrative
costs of complaint
handling
Increased Ombudsman
service fees
Communications
campaign fee
Costs of running own
voluntary consumer
communications or
process improvements
Benets Reduced Ombudsman
service fees per
complaint involving
undisclosed commission
Increased redress receipts
Earlier receipt of redress
Saved time/effort in making
complaints involving
undisclosed commission
Reduced supervision costs
after the deadline
Reduced uncertainty
over PPI liabilities lowers
weighted average cost
of capital
Lower weighted average
cost of capital and efcient
corporate restructuring in
the retail nancial sector
lead to reduced prices of
nancial products
Reduced uncertainty over
PPI liabilities allows efcient
corporate restructuring in
retail nance sector
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Annex 5
Compatibility statement
Introduction
1. In CP15/39 (Annex 4), we set out in detail our reasons for concluding that our proposed
package of interventions:
• was consistent with our strategic objective
• advanced one or more of our operational objectives
• had regard to the regulatory principles in section 3B FSMA
• was compatible with the duty on us to discharge our general functions (which include rule-
making) in a way that promotes effective competition in the interests of consumers (section
1B(4) FSMA)
• would not have an impact on mutual societies which is signicantly different from the
impact on other authorised persons
• was compatible with our duties under the Legislative and Regulatory Reform Act 2006
2. We asked:
Q18: Do you have any comments on our compatibility
statement? In particular, do you have any comments on
any issues relating to mutual societies that you believe
would arise from our proposals?
3. In this Annex, we discuss the main feedback we received and our responses. We also discuss
the impact of the changes to our proposals concerning Plevin discussed in Chapter 5 above.
Feedback on the compatibility statement and our responses
4. Most responses from industry either broadly accepted our compatibility statement or said that
they had no comments on it.
5. Some responses from industry, however, said our statement was inadequate in a number of
respects:
a. We could not reasonably assert that our proposals were compatible with our objectives, or
that we were exercising our functions in a way which recognises differences in the nature
of businesses, as we had:
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–
said we could not predict what will happen or meaningfully estimate the costs or
consequences for rms
–
acknowledged that 4000 rms sold PPI but gathered evidence from just 8
–
said our proposals would mainly affect large multi-product rms
–
not assessed or even acknowledged the particular operational and cash-ow impact on
small and medium-sized rms, including their viability
–
not assessed the specic effects on the running-account credit sector, where rms
have large historic back books that could be signicantly impacted by our proposed
Plevin rules and guidance, including some who would be brought under our complaint
handling obligations for the rst time
Our response
As we said in Annex 4 above, we appreciate that there is some frustration that
we cannot provide more certainty or quantitative detail about the potential cost
and benets associated with our proposed package of interventions. However,
we remain of the view that the dynamics we have identied and set out in
our CBA provide us with a reasonable basis for expecting that it will deliver
a net benet for consumers and other benets, including some that advance
our integrity objective. We recognise, however, that given the uncertainties
involved, our overall conclusion is not guaranteed.
We gathered information from 8 rms who together receive the great majority
of PPI complaints. We remain of the view that this was a reasonable and efcient
way in which to carry out our aim of assessing the PPI landscape, including the
broad trends in PPI complaints and their handling, and whether we should
intervene further. It is true that we did not seek similar information from smaller
rms. However, our focus was not on individual rms, and we did not assess
the potential impact of our proposals on the 8 rms individually either.
Since CP15/39, we asked relevant trade bodies to invite their memberships to
provide us with similar information to that which we requested of the 8 rms,
or any other information they would like to provide about the potential impact
of our proposals on them. This invitation remains open.
We did say in CP15/39 that our proposals would help bring an orderly conclusion
to the PPI issue, reduce uncertainty and rebuild public trust in the nancial
sector, particularly given the rms mainly concerned are multi-product rms at
the heart of most retail nancial markets. We remain of the view that this is a
reasonable view to take.
This view did not mean, however, that we had ignored the impact on smaller
and medium-sized rms or assumed it would be the same as for larger rms.
We do consider that these other rms would also benet from our proposals
and the prospect they offer of an orderly conclusion and reduced uncertainty
about long-term PPI liabilities. However, we accept that the proposals may also
create some operational and nancial pressures for some smaller and medium-
sized rms. We agged in Chapter 3 above that we would engage with rms
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to ensure they were planning and resourcing to deal with the volume of PPI
complaints they might receive in the period before any deadline. We also said
in Chapter 2 that if rms nd themselves in difculty, they can discuss with us
potential methods within the regulatory framework to manage these pressures.
For example, as noted, our existing rules on complaint handling already provide
rms with exibility around the usual time limits for handling complaints if there
is a good reason for delay. We stand ready to work closely with rms that need
to use this exibility, including by providing individual guidance if appropriate.
Concerning the running-account credit sector specically, our proposals are
not creating obligations and liabilities for these rms in terms of levels of
potential redress in individual cases. After all, s.140A already applies to them
and their credit agreements and the Plevin judgment is well known, certainly
among CMCs, and is already giving rise to complaints to rms and claims in
court. Our aim is to reduce uncertainty and enable rms to take a fair and
consistent approach to handling such complaints. We consider that providing
this certainty about how to consider PPI complaints in light of Plevin will reduce
their relative per complaint administrative cost of handling. However, we accept
that our proposed package of measures as a whole may increase the number
of complaints to them in the period before the deadline, including those where
Plevin is relevant.
As we explained in Chapter 5 above, we have not proposed changes to the
scope of our DISP rules or the jurisdiction of the Financial Ombudsman Service
and do not consider our proposals have any such unintended consequence. The
proposed rules and guidance only apply to ‘complaints’ and we have proposed
no changes to the definition of that term. Firms, as now, when they receive
complaints will need to consider whether such complaints are ‘complaints’ for
the purposes of DISP. This requires consideration of whether the complaint
relates to an activity that falls within the jurisdiction of the Financial Ombudsman
Service. Matters which, if complained about now, would be outside the scope
of our DISP rules or the jurisdiction of the Financial Ombudsman Service, will
remain outside, even if we make our proposed rules and guidance on complaint
handling in light of Plevin.
b. We could not reasonably say that our proposed burdens and restrictions were proportionate
to the expected benets, or likely to help sustainable growth in the economy of the UK in
the medium or long term, as we had:
–
admitted that neither the costs nor benets could be estimated
–
assumed complaints simply transfer value from rms to consumers and are therefore
proportionate – whereas £3.5bn of “benets” had owed to CMCs
–
unnecessarily extended the approach of Plevin to products the judgment had not
covered, such as regular premium PPI, including on running-account credit
–
not limited the impact of our proposed rules and guidance on Plevin on very old PPI
agreements, allowing redress that would be disproportionate to any real detriment to
the consumer
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–
disregarded the disproportionate costs of handling small value complaints, particularly
in the running-account credit sector
–
failed to recognise that the proposals will not bring the benets of certainty and closure
to rms, as they will not limit the individuals’ rights to go to court
–
failed to give reasons why our Plevin proposals in particular would help growth
Our response
As we set out in our CBA in CP15/39 and in Annex 4 above, we consider that the
dynamics we have identied provide us with a reasonable basis for expecting
that our proposed package would deliver a net benet for consumers and other
benets, and a mix of costs and benets to rms. We saw nothing in these
dynamics to suggest that the costs would be disproportionate to the benets.
However, we acknowledge that for rms, the costs may accrue sooner than the
benets, and that this could cause some smaller or medium-sized rms some
strain. Again, however, if rms nd themselves in difculty, they can discuss
with us potential methods within the regulatory framework to manage these
pressures and avoid detriment to consumers or disproportionate consequences
for rms or the FSCS.
We accept that a signicant sum of PPI redress has been, and continues to be,
passed from rms, via complainants, to CMCs as fees. However, we do not
consider that this undermines our view of redress for mis-selling, or, as proposed,
for undisclosed commission, as a justied transfer from rms to consumers
and as a benet to the latter. However, we have set out in Chapter 3 how
our proposed communications campaign will inform consumers about how to
make PPI complaints directly to rms themselves if they wish to complain.
We do not consider that we have unnecessarily or disproportionately extended
the approach of Plevin to products that did not feature in the judgment or to
remote time periods. As we explain in Chapter 5 above, we consider that:
• there is no sufcient relevant difference between SPPPI and RPPPI, including
running-account and restricted-use credit, to indicate that Plevin’s logic and
our proposed rules and guidance should not apply to RPPPI
• suggested restrictions concerning sales made, or premiums paid, before 6
April 2007 (or earlier dates) cannot reasonably be inferred from, or viewed as
compatible with, the explicitly retrospective transitional provisions enacted
by Parliament in relation to s.140A
• our proposed purpose of ensuring fair and consistent complaint handling
would not be served if we provided rules and guidance that depart too far
from the approach set out in the Plevin judgment and open up obvious gaps
with potential claims and decisions in the courts
However, as we also discussed in Chapter 5, we accept that it may be reasonable
for a rm, in order to avoid disproportionate processing and administrative
costs, for example where balances on a running credit account are small, to
take a pragmatic and simplied approach to calculating redress where it is
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clearly reasonable to assume the amount of redress is likely to be small, as long
as this simplied approach does not disadvantage the complainant.
Consumers will remain free to choose the court route to have their claim about
mis-selling or undisclosed commission heard, including after our proposed
deadline for complaining has fallen. However, having the fair and informal
alternative of our proposed rules and guidance concerning Plevin may help
avoid an increased ow of cases to the courts, with all of the challenges and
costs that might involve for consumers and rms.
As noted above, we acknowledge that for firms, the costs of our intervention
may accrue sooner than the benefits. However, we do not think that this
undermines our view that the orderly conclusion and reduced uncertainty our
proposed intervention concerning Plevin would bring is compatible with, and
may assist, sustainable medium or long term growth in the UK economy.
c. We could not reasonably say that our proposals respect the responsibility of senior
management, or would use our resources in the most efcient and economic way, as we
had not acknowledged:
–
that our proposals would place the senior management of small and medium rms
with limited resources in a very difcult position, because they will be unable to plan for
consequences which the FCA says it cannot predict itself
–
the additional monitoring and supervisory resource that we would need to devote to
rms’ handling of Plevin complaints
Our response
We do not consider that the fact that the costs and benets of our proposed
package of interventions cannot be reasonably estimated, or are not reasonably
practicable to estimate, undermines the principle of our respecting senior
management responsibility. To have made such an estimate, we would have
had to estimate in advance the future balance of costs and benets over many
years in aggregate across all relevant rms and consumers. By contrast, senior
management would only have to assess, plan for, and manage complaint volumes
for their own rm, and from period to period, and will have opportunity to
respond along the way to emerging trends. Again, as noted above, if rms nd
themselves in difculty, their senior management can approach us to discuss
potential methods within the regulatory framework to manage these pressures.
As flagged in Chapter 3 above, if we make rules and guidance, we will maintain
a dedicated PPI supervisory team throughout the period that will take forward
a robust and proactive engagement with firms. If issues arise, including in
particular sectors, we will assess and potentially respond to these in a risk-based
way. We consider that such supervisory engagement would be a reasonable,
effective and efficient use of our resources.
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6. In light of their various concerns, these responses concluded that we needed to make significant
changes to our proposals, in order to protect small and medium firms in particular from the
short to medium term uncertainty they implied, otherwise our compatibility statement would
remain invalid.
Our response
We have responded to the various concerns above. We do not see the need
for changes to our proposals of the kind requested, or for changes to our
compatibility statement in CP15/39.
7. Most responses from consumer bodies and CMCs said that they had no comments on our
compatibility statement.
8. Some, however, did not offer detailed comments on the statement, but said that they did not
agree with it, as they did not feel our package of proposals was compatible with our consumer
protection objective.
Our response
As discussed at length in Chapters 2, 3 and 5 above, we remain of the view that
our proposed package of interventions would help bring finality and certainty
in a way that advances our operational objectives of securing an appropriate
degree of protection for consumers and protecting and enhancing the integrity
of the UK financial system.
Issues relating to mutual societies
9. Some responses from mutual societies said that our proposals would increase their costs, but
that these costs would be proportionate to the size of individual firms and not detrimentally
impact mutual societies in comparison with other firms.
10. Other responses from mutual societies, however, said our proposals would raise particular
issues for at least some mutual societies, because in their view:
• Many mutuals had a relatively ‘good story to tell’ about PPI, as they had:
–
mainly sold mortgage PPI (MPPI), which the FSA had previously expressed less concern
about, and which in their view is not covered by s.140A
–
low uphold rates, including at the Financial Ombudsman Service, which in their view
indicated that they did not generally mis-sell PPI
–
a good track record of proactively offering redress where concerns about sales practices
had been identied
–
not acted irresponsibly with regard to commission, with their rates generally being
under 50%
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• Many mutuals had been aficted, nonetheless, by high volumes of spurious complaints.
• Our proposals would therefore impact mutuals disproportionately by:
–
prompting further increases in spurious complaints to them
–
raising their customers’ expectations of full return of premium, rather than the potential
redress of part of the commission, despite the lack of systemic mis-selling
–
creating additional operational costs that will directly impact members, as mutuals have
less ability to generate funds in the market
Our response
In Chapter 3 above, we explained that we do not think that our proposed
communications campaign would prompt signicant numbers of speculative
or spurious complaints. This is because we will clearly explain on the website
and via the helpline the issues with PPI selling and reasons why consumers may
want to complain, so that they can make an informed decision about their
own circumstances and whether to complain or not. Through these channels
we will also make it clear that those who have already received full redress will
not receive further redress if they complain again, because they would not be
owed it.
We will continue to monitor the types of complaints being received by rms
and the outcomes throughout the period. If there are increases in, for example
‘no PPI’ cases, we would discuss the reasons behind this with rms and consider
the messaging in our campaign. If individual rms, including mutual societies,
suffer from particularly high proportions of ‘no PPI’ complaints, we would work
closely with the CMR, Financial Ombudsman Service and relevant CMCs to try
to reduce these cases, which are fruitless for the CMCs and complainants.
We do not agree that past sales of MPPI are generally not covered by s.140A or
our proposed rules and guidance on Plevin. Only credit agreements entered into
by a rm carrying on a regulated activity are covered by the relevant exclusion
in the Consumer Credit Act 1974.
As we explained in Chapter 5 above:
• The risk that rms will receive complaints is already there, as the Plevin
judgment is already well publicised, particularly among CMCs.
• Even if a rm’s commission when distributing PPI was below the tipping
point we propose, it would still need to consider arguments that the non-
disclosure of such lower commission created an unfair relationship, for
example, because the complainant was in particularly difcult nancial
circumstances at the time of the sale.
We note, however, that it would be open to rms, including mutuals, to set
out publicly their commission rates for relevant PPI products in relevant periods,
and thereby potentially reduce the number of unsuccessful complaints to them
about undisclosed commission.
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Overall, therefore, we do not consider that our proposals would have a
significantly different or adverse impact on mutuals, or that any changes to our
package of proposals or compatibility statement in this regard are needed.
The proposed changes to the proposed rules and guidance concerning PPI
complaints and Plevin
11. We have carefully considered, from the perspective of our compatibility responsibilities, the
proposed changes and clarifications of the rules and guidance concerning PPI complaints and
Plevin that we discuss in Chapter 5 above.
12. We do not consider that those proposed changes and clarifications imply the need for any
change to our previous assessment (at paragraphs 24 to 34 of Annex 4 in CP15/39) of the
compatibility of our proposed rules and guidance on Plevin with all relevant requirements.
Conclusion
13. Having carefully considered all the feedback received, we believe that our compatibility
statement in CP15/39 remains appropriate and does not need to be changed. However, we will
continue to consider the compatibility of our proposals with all relevant requirements, including
in light of further feedback received in response to this further consultation. These ongoing
considerations will inform our final decision about whether to proceed with our proposed
package of interventions.
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Appendix 1
Revised draft Handbook text (legal instrument)
FCA 2016/xx
DISPUTE RESOLUTION: COMPLAINTS (PAYMENT PROTECTION
INSURANCE) (AMENDMENT) INSTRUMENT 2016
Powers exercised
A. The Financial Conduct Authority makes this instrument in the exercise of the
following powers and related provisions in the Financial Services and Markets Act
2000 (‘the Act’):
(1) section 137A (FCA’s general rule-making power);
(2) section 137T (General supplementary powers);
(3) section 138C (Evidential provisions);
(4) section 139A (Power of the FCA to give guidance);
(5) paragraph 23 (Fees) of Part 3 (Penalties and Fees) of Schedule 1ZA (The
Financial Conduct Authority); and
(6) paragraph 13(1)(a) of Schedule 17 (FCA’s rules).
B. The rule-making powers listed above are specified for the purpose of section 138G(2)
(Rule-making instruments) of the Act.
Commencement
C. This instrument comes into force as follows:
Annex
Date comes into force
Annex A
[Making date + c. 3 months]
Annex B
[Making date + c. 3 months]
Parts 1 and 3 of Annex C
[Making date + c. 3 months]
Part 2 of Annex C
[Making date + c. 6 months] (referred
to in this draft instrument as [YY])
Amendments to the Handbook
D. The modules of the FCA’s Handbook of rules and guidance listed in column (1)
below are amended in accordance with the Annexes to this instrument listed in
column (2).
(1)
(2)
Glossary of definitions
Annex A
Fees manual (FEES)
Annex B
Dispute Resolution: Complaints sourcebook (DISP)
Annex C
FCA 2016/xx
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Citation
E. This instrument may be cited as the Dispute Resolution: Complaints (Payment
Protection Insurance) (Amendment) Instrument 2016.
By order of the Board
[date]
FCA 2016/xx
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Annex A
Amendments to the Glossary of definitions
In this Annex, underlining indicates new text unless otherwise stated.
Insert the following new definitions in the appropriate alphabetical position. The text is not
underlined.
anticipated profit
share
a reasonable estimate of the amount that it was reasonably foreseeable
at the time of the sale would be payable in the future in respect of the
payment protection contract under profit share arrangements.
CCA lender
has the same meaning as “creditor” under section 140C of the CCA
which is, in summary:
(a)
a “creditor” is a person who provides the debtor with credit of
any amount;
(b)
references to a “creditor” include:
(i)
a person to whom his rights and duties under the credit
agreement have passed by assignment or operation of law;
(ii)
where two or more persons are the creditor to any one or
more of those persons.
Amend the following definitions as shown.
commission
(1)
(other than in DISP Appendix 3) any form of commission or
remuneration, including a benefit of any kind, offered or given in
connection with:
(a)
designated investment business (other than commission
equivalent);
(b)
insurance mediation activity in connection with a non-
investment insurance contract; or
(c)
the sale of a packaged product, that is offered or given by
the product provider.
(2)
(in DISP Appendix 3) the part of the total amount paid in respect
of a payment protection contract that was not due to be passed to
and retained by the insurer.
credit agreement
(1)
(other than in DISP Appendix 3) in accordance with article 60B
of the Regulated Activities Order, an agreement between an
FCA 2016/xx
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individual ("A") and any other person ("B") under which B
provides A with credit of any amount.
(2)
(in DISP Appendix 3) has the same meaning as “credit
agreement” for the purposes of sections 140A to 140C of the
CCA which is, in summary, an agreement which meets the
following conditions:
(a)
it is between an individual (the “debtor”) and any other
person (the “creditor”) under which the creditor provides
the debtor with credit of any amount; and
(b)
an order under section 140B of the CCA could be made in
relation to it. In summary, orders can be made under
section 140B of the CCA in relation to credit agreements
except where:
(i)
the exclusion under section 140A(5) of the CCA
applies (this relates to regulated mortgage contracts
and regulated home purchase plans); or
(ii)
the agreement was made before 6 April 2007 and
became a completed agreement before 6 April 2008.
For the avoidance of doubt, the reference to agreements in
relation to which orders may be made under section 140B is to
those agreements as affected by amendments to enactments from
time to time.
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Annex B
Amendments to the Fees manual (FEES)
In this Annex, underlining indicates new text and striking through indicates deleted text,
unless otherwise stated.
3
Application, Notification and Vetting Fees
…
3.2
Obligation to pay fees
…
3.2.7
R
Table of application, notification, vetting and other fees payable to the FCA
Part 1: Application, notification and vetting fees
(1) Fee payer
(2) Fee Payable (£)
Due date
…
[(zz)] Any firm that
meets the test in FEES
3 Annex 10C 1R(1)
(PPI Campaign Fees)
The amount set out in
FEES 3 Annex 10C 1
R(2)
Within 30 days of the
date of the invoice.
…
…
After FEES 3 Annex 10B (Designated Credit Reference Agencies Fee), insert the following
new Annex. The text is not underlined.
3 Annex
10C
PPI Campaign Fees
(1)
R
(1)
A firm must pay a PPI campaign fee calculated in accordance with (2)
if it has:
(a)
reported over 100,000 complaints cumulatively under 17(A)
(payment protection insurance – advising, selling and arranging)
of the complaints return form in DISP 1 Annex 1R; and
(b)
reported these complaints from 1 August 2009 up to and
including 1 August 2015.
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(2)
The PPI campaign fee is calculated by multiplying the number of
complaints cumulatively reported to the FCA under 17(A) of DISP 1
Annex 1R for the firm from 1 August 2009 up to and including 1
August 2015 by £3.64.
(2)
G
(1)
A firm’s PPI campaign fee will be a proportion of the total amount of
costs the FCA has estimated it will incur in running the consumer
communications campaign highlighting the introduction of the two-
year PPI complaints deadline.
(2)
(a)
The FCA will invoice the PPI campaign fee in equal amounts
over two years.
(b)
The FCA will invoice the first part of the fee during the month
following FEES 3 Annex 10C coming into force and will
invoice the second part one calendar year later.
(3)
The FCA will write to each firm that meets the test at FEES 3 Annex
10C 1R(1) before sending out its first invoice, setting out:
(a)
the number of complaints reported to the FCA under 17(A) of
DISP 1 Annex 1R for that firm from 1 August 2009 up to and
including 1 August 2015; and
(b)
the basis on which it has calculated the PPI campaign fee for
that firm.
(4)
Any amounts raised that are in excess of the actual cost of the PPI
consumer communications campaign will be refunded to fee payers
under FEES 3 Annex 10C on a pro rata basis.
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Annex C
Amendments to the Dispute Resolution: Complaints sourcebook (DISP)
In this Annex, underlining indicates new text and striking through indicates deleted text,
unless otherwise stated.
Part 1
2.8
Was the complaint referred to the Financial Ombudsman Service in time?
…
Payment protection insurance complaints
2.8.8
G
If a complaint relates to the sale of a payment protection contract,
knowledge by the complainant that there was a problem with the sale of the
payment protection contract generally (for example where there has been a
rejection of a claim on the grounds of ineligibility or exclusion, or the
complainant has received a customer contact letter explaining that they may
have been mis-sold) would not in itself ordinarily be sufficient to establish
for the purposes of the three-year time period in DISP 2.8.2R (2) that the
complainant had become aware (or ought reasonably to have become
aware) that he had cause for complaint in respect of a failure to make the
disclosure set out at DISP App 3.3A.2E (relating to failure to disclose
commission).
…
Part 2
2.8
Was the complaint referred to the Financial Ombudsman Service in time?
…
2.8.9
R
In addition to DISP 2.8.2R, the Ombudsman cannot consider a complaint if
the complainant refers it to the Financial Ombudsman Service:
(1)
after [XX] where the complaint:
(a)
relates to the sale of a payment protection contract that took
place on or before [YY]; and
(b)
expresses dissatisfaction about the sale, or matters related to
the sale, including where there is a rejection of claims on the
grounds of ineligibility or exclusion (but not matters unrelated
to the sale, such as delays in claims handling or administrative
matters such as taking the incorrect amount of premium);
unless the complainant referred the complaint to the respondent or to
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the Ombudsman before [XX] and has a written acknowledgement or
some other record of the complaint having been received;
unless:
(3)
in the view of the Ombudsman, the failure to comply with the time
limit in DISP 2.8.9R was as a result of exceptional circumstances; or
(4)
the respondent has consented to the Ombudsman considering the
complaint where the time limit in DISP 2.8.9R has expired (but this
does not apply to a “relevant complaint” within the meaning of
section 404B(3) of the Act).
…
Part 3
Appendix 3
Handling Payment Protection Insurance complaints
App 3.1
Introduction
App 3.1.1
G
(1)
This appendix sets out how:
(a)
a firm should handle complaints relating to the sale of a
payment protection contract by the firm which express
dissatisfaction about the sale, or matters related to the sale,
including where there is a rejection of claims on the grounds
of ineligibility or exclusion (but not matters unrelated to the
sale, such as delays in claims handling); and
(b)
a firm that is a CCA lender and which has received such a
complaint should consider whether there was a failure to make
the disclosure set out at DISP App 3.3A.2E in relation to the
sale of a payment protection contract which covers or covered
or purported to cover a credit agreement (this includes partial
coverage). In this appendix, failure to make the disclosure at
DISP App 3.3A.2E is referred to as “failure to disclose
commission”.
(2)
It relates to the sale of any payment protection contract whenever the
sale took place and irrespective of whether it was on an advised or
non-advised basis; conducted through any sales channel; in
connection with any type of loan or credit product, or none; whether
the insurer was in the same group as the firm or not; whether the
premium was financed by the credit product or not; and for a regular
premium or single premium payment. It applies whether the policy is
currently in force, was cancelled during the policy term or ran its full
term.
(3)
It provides for a two-step approach to handling complaints. A firm
which is not a CCA lender should only consider step 1. A CCA
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lender which also sold the payment protection contract should
consider step 1 in all cases and consider step 2 in those cases where it
has provided no or only partial redress at step 1. A CCA lender which
did not sell the payment protection contract should only consider
step 2.
(4)
This appendix does not require firms to assess whether the firm’s
conduct of the sale was in breach of a fiduciary duty where there has
been a failure to disclose either the existence of, or the level of, any
commission paid. Complaints concerning such issues should be dealt
with under DISP 1.4.1R.
Step 1
App 3.1.2
G
The At step 1, the aspects of complaint handling dealt with in this appendix
are how the firm should:
(1)
assess a complaint in order to establish whether the firm’s conduct of
the sale failed to comply with the rules, or was otherwise in breach of
the duty of care or any other requirement of the general law (taking
into account relevant materials published by the FCA, other relevant
regulators, the Financial Ombudsman Service and former schemes).
In this appendix this is referred to as a “breach or failing” by the
firm;
(2)
determine the way the complainant would have acted if a breach or
failing by the firm had not occurred; and
(3)
determine appropriate redress (if any) to offer to a complainant.
App 3.1.3
G
Where Under step 1, where the firm determines that there was a breach or
failing, the firm should consider whether the complainant would have
bought the payment protection contract in the absence of that breach or
failing. This appendix establishes presumptions for the firm to apply about
how the complainant would have acted if there had instead been no breach
or failing by the firm. The presumptions are:
(1)
for some breaches or failings (see DISP App 3.6.2E), the firm should
presume that the complainant would not have bought the payment
protection contract he bought; and
(2)
for certain of those breaches or failings (see DISP App 3.7.7E),
where the complainant bought a single premium payment protection
contract, the firm may presume that the complainant would have
bought a regular premium payment protection contract instead of the
payment protection contract he bought.
App 3.1.4
G
There may also be instances where a firm concludes after investigation at
step 1 that, notwithstanding breaches or failings by the firm, the
complainant would nevertheless still have proceeded to buy the payment
protection contract he bought. CCA lenders should still go on to consider
FCA 2016/xx
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step 2 in such cases.
Step 2
App
3.1.4A
G
At step 2, the aspects of complaint handling dealt with in this appendix are
how a CCA lender should:
(1)
assess a complaint in order to establish whether failure to disclose
commission gave rise to an unfair relationship under section 140A of
the CCA; and
(2)
determine the appropriate redress (if any) to offer to a complainant.
…
App 3.2
The assessment of a complaint
App 3.2.-1
G
This section applies to both step 1 and step 2.
App 3.2.1
G
The firm should consider, in the light of all the information provided by the
complainant and otherwise already held by or available to the firm, whether
(at step 1) there was a breach or failing by the firm or (at step 2) whether
there was a failure to disclose commission.
…
App 3.2.5
G
If, during the assessment of the complaint, the firm uncovers evidence of a
breach or failing, or a failure to disclose commission, that was not raised in
the complaint, the firm should consider those other aspects as if they were
part of the complaint.
…
App 3.2.7
G
The firm should consider all of its sales of payment protection contracts to
the complainant in respect of re-financed loans that were rolled up into the
loan covered by the payment protection contract that is the subject of the
complaint. The firm should consider the cumulative financial impact on the
complainant of any previous breaches or failings in those sales or any
previous failures to disclose commission.
App 3.3
The approach to considering evidence at step 1
App 3.3.-1
G
This section applies to step 1. However, CCA lenders should also consider
it at step 2 to the extent that their consideration of unfairness takes into
account any of the matters dealt with here.
…
After DISP App 3.3 (The approach to considering evidence at step 1), insert the following
new DISP App 3.3A. All the text is new and is not underlined.
FCA 2016/xx
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App 3.3A
The approach to considering evidence at step 2
App
3.3A.1
E
This section applies to a CCA lender at step 2.
App
3.3A.2
E
Where the firm did not disclose to the complainant in advance of a payment
protection contract being entered into (and is not aware that any other
person did so at that time) either:
(1)
the anticipated profit share plus the commission known at the time of
the sale; or
(2)
the anticipated profit share plus the commission reasonably
foreseeable at the time of the sale or the likely range in which they
would fall or how they would be calculated;
the firm should consider whether it can satisfy itself that this did not give
rise to an unfair relationship under section 140A of the CCA. The firm’s
consideration of unfairness should take into account all relevant matters,
including whether the non-disclosure prevented the complainant from
making a properly informed judgement about the value of the payment
protection contract.
App
3.3A.3
G
DISP App 3.3A.2E reflects section 140B(9) of the CCA which provides (in
summary) that if the debtor alleges that the relationship between the
creditor and the debtor is unfair to the debtor, it is for the creditor to prove
to the contrary.
App
3.3A.4
E
(1)
The firm should presume that failure to disclose commission gave
rise to an unfair relationship under section 140A of the CCA if:
(a)
(the anticipated profit share) + (the commission known at the
time of the sale); or
(b)
(the anticipated profit share) + (the commission reasonably
foreseeable at the time of the sale);
was more than 50% of the total amount paid in respect of the
payment protection contract.
(2)
The firm should presume that failure to disclose commission did not
give rise to an unfair relationship under section 140A of the CCA if:
(a)
(the anticipated profit share) + (the commission known at the
time of the sale); or
(b)
(the anticipated profit share) + (the commission reasonably
foreseeable at the time of the sale);
was 50% or less of the total amount paid in respect of the payment
FCA 2016/xx
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protection contract.
App
3.3A.5
G
The presumption in DISP App 3.3A.4E(1) is rebuttable. Examples of
factors which may contribute to its rebuttal include:
(1)
the CCA lender did not know and could not reasonably be expected
to know the level of commission and anticipated profit share; or
(2)
the complainant could reasonably be expected to be aware of the
level of commission and anticipated profit share (e.g. because they
worked in a role in the financial services industry which gave them
such awareness); or
(3)
disclosure would have made no difference whatsoever to the
complainant’s judgement about the value of the payment protection
contract. This factor is only likely to be relevant in limited
circumstances. If the firm concludes that disclosure would have at
least caused the complainant to question whether the payment
protection contract represented value for money and whether it was a
sensible transaction to enter into (regardless of whether they may or
may not have ultimately gone ahead with the purchase), then the
presumption is unlikely to be rebutted due to this factor.
App
3.3A.6
G
The presumption in DISP App 3.3A.4E(2) is also rebuttable. An example of
a factor which may contribute to its rebuttal includes that the complainant
was in particularly difficult financial circumstances at the time of the sale.
App
3.3A.7
G
Where the firm has no record of the level of commission or profit share
arrangements applicable to a particular payment protection contract sale, it
should make reasonable assumptions about it based on, for example,
commission levels or profit share arrangements in respect of which records
are held and general commercial trends in the industry during the period in
question.
Amend the following as shown.
App 3.4
Root cause analysis
App 3.4.-1
G
This section applies to both step 1 and step 2.
…
App 3.4.2
G
Where consideration of the root causes of complaints suggests recurring or
systemic problems in the firm’s sales practices for payment protection
contracts, the firm should, in assessing an individual complaint, consider
whether the problems were likely to have contributed to a breach or failing
or to a failure to disclose commission in the individual case, even if those
problems were not referred to specifically by the complainant.
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…
App 3.5
Re-assessing rejected claims at step 1
App 3.5.-1
E
This section applies to step 1.
…
App 3.6
Determining the effect of a breach or failing at step 1
App 3.6.-1
E
This section applies to step 1.
…
App 3.7
Approach to redress at step 1
App 3.7.-1
E
This section applies to step 1.
…
Interaction with step 2
App
3.7.16
E
Where the firm is aware that another firm has previously paid redress at step
2, the firm may deduct this from the redress due under step 1.
…
After DISP App 3.7 (Approach to redress at step 1), insert the following new DISP App 3.7A.
All the text is new and is not underlined.
App 3.7A
Approach to redress at step 2
App
3.7A.1
E
This section applies to a CCA lender at step 2.
App
3.7A.2
E
Where the firm concludes in accordance with DISP App 3.3A that the non-
disclosure has given rise to an unfair relationship under section 140A of the
CCA, the firm should remedy the unfairness.
App
3.7A.3
E
Except where DISP 3.7A.4E applies, the firm should pay to the complainant
a sum equal to:
(1)
the commission actually paid in respect of the payment protection
contract; plus
(2)
an amount representing the actual value of any payment(s) made in
respect of the payment protection contract under profit share
arrangements; minus
(3)
50% of the total amount paid in respect of the payment protection
FCA 2016/xx
Page 14 of 16
contract.
The firm should also pay historic interest where relevant on that sum (plus
simple interest on the whole amount).
App
3.7A.4
E
In cases where the presumption in DISP App 3.3A.4E(2) has been rebutted
and the firm has concluded that the non-disclosure gave rise to an unfair
relationship under section 140A of the CCA, the firm should consider what
level of commission plus anticipated profit share would not have given rise
to unfairness in that case and use that amount at DISP App 3.7A.3E(3).
App
3.7A.5
E
In cases falling within DISP App 3.3A.4E(1)(b) or DISP 3.3A.4E(2)(b), the
calculations in DISP App 3.7A.3E and DISP 3.7A.4E should only be
applied to those periods in the life of the payment protection contract where
the actual level of commission plus the actual value of any payment(s) made
in respect of the payment protection contract under profit share
arrangements was more than 50% (or such other amount as used under
DISP App 3.7A.4E) of the total amount paid in respect of the payment
protection contract.
App
3.7A.6
E
If the complainant has received any rebate, the firm may calculate the
amount of the rebate that represents commission and profit share sums paid
up to the point of cancellation that were more than 50% (or such other
amount as used under DISP App 3.7A.4E) of the total amount paid in
respect of the payment protection contract and deduct this from the amount
of redress otherwise payable to the complainant.
App
3.7A.7
E
Additionally, where a single premium was added to a loan:
(1)
for live policies, where there remains an outstanding loan balance,
the firm should, where possible, arrange for the loan to be
restructured (without charge to the complainant but using any
applicable cancellation value) with the effect of:
(a)
removing a sum equal to that payable under DISP App
3.7A.3E or DISP 3.7A.4E (before historic or simple interest);
and
(b)
ensuring the number and amounts of any future repayments
(including any interest and charges) are the same as would
have applied if the commission plus anticipated profit share
was 50% (or such other amount as used under DISP App
3.7A.4E) of the total amount paid in respect of the payment
protection contract; or
(2)
for cancelled policies, the firm should pay the complainant the
difference between the actual loan balance at the point of
cancellation and what the loan balance would have been if a sum
equal to that payable under DISP App 3.7A.3E or DISP 3.7A.4E
(before historic or simple interest) had not been added (plus simple
interest) minus any applicable cancellation value.
FCA 2016/xx
Page 15 of 16
App
3.7A.8
E
Additionally, for a regular premium payment protection contract, where the
policy is live the firm should disclose the current level of commission and
anticipated profit share and give the complainant the choice of continuing
with the policy without change or cancelling the policy without penalty.
App
3.7A.9
E
Where a claim was previously paid on the policy, the firm should not deduct
this from the redress paid.
App
3.7A.10
E
Where the firm has determined that partial redress is due under step 1 (for
example, because alternative redress should be paid under DISP App 3.7.9E
or because the firm intends to deduct the value of a paid claim from the
redress), it should pay the higher of that amount or the amount that is due
under step 2.
App
3.7A.11
E
Where the firm has determined that DISP App 3.7.12E applies at step 1, the
firm should apply either that approach or the approach in DISP App
3.7A.7E depending on which is most favourable to the complainant.
App
3.7A.12
E
Where the firm has previously paid partial redress under step 1 (or is aware
that another firm has previously paid partial redress at step 1), the firm may
deduct this from the redress due under step 2.
Amend the following as shown.
App 3.8
Other appropriate redress at steps 1 and 2
Step 1
App 3.8.1
E
The remedies in DISP App 3.7 are not exhaustive.
App 3.8.2
E
When applying a remedy other than those set out in DISP App 3.7, the firm
should satisfy itself that the remedy is appropriate to the matter complained
of and is appropriate and fair in the individual circumstances.
Step 2
App 3.8.3
E
The remedy in DISP App 3.7A is not exhaustive.
App 3.8.4
E
Firms should depart from the remedy set out in DISP App 3.7A if there are
factors in a particular matter which require a different amount or form of
redress in order to remedy the unfairness found.
App 3.9
Other matters concerning redress at steps 1 and 2
…
FCA 2016/xx
Page 16 of 16
App 3.9.2
G
In assessing redress, the firm should consider whether there are any other
further losses that flow from its breach or failing, or from its failure to
disclose commission, that were reasonably foreseeable as a consequence of
the firm's breach or failing or from its failure to disclose commission, for
example, where the payment protection contract's cost or rejected claims
contributed to affordability issues for the associated loan or credit which led
to arrears charges, default interest, penal interest rates or other penalties
levied by the lender.
App 3.9.3
G
Where, for single premium policies, there were previous breaches or
failings or previous failures to disclose commission (see DISP App 3.2.7G)
the redress to the complainant should address the cumulative financial
impact.
App 3.9.4
G
The firm should make any offer of redress to the complainant in a fair and
balanced way. In particular, the firm should explain clearly to the
complainant the basis for the redress offered including how any
compensation is calculated and, where relevant, the rescheduling of the
loan, and the consequences of accepting the offer of redress. Where the firm
makes an offer of redress under DISP App 3.7A.10E and DISP App
3.7A.11E, it should consider whether it is necessary to provide both
calculations in order to ensure the offer is made in a fair and balanced way.
App 3.10
Application: evidential provisions
App
3.10.1
E
(1)
The evidential provisions in this appendix for step 1 (DISP App 3.5.-
1E to 3.5.1E, DISP 3.6.-1E to 3.6.3E, DISP 3.7.-1E to 3.7.16E and
DISP 3.8.1E to 3.8.2E) apply in relation to complaints about sales
that took place on or after 14 January 2005.
(2)
The evidential provisions for step 2 (DISP App 3.3A.1E, DISP
3.3A.2E, DISP 3.3A.4E, DISP 3.7A.1E to 3.7A.12E and DISP 3.8.3E
to 3.8.4E) apply in relation to complaints received by CCA lenders
about sales where the payment protection contract covers or covered
or purported to cover (this includes partial coverage) a credit
agreement.
App
3.10.2
G
For complaints about sales that took place prior to 14 January 2005, a firm
should take account of the evidential provisions in this appendix for step 1
(DISP App 3.5.-1E to 3.5.1E, 3.6.-1E to 3.6.3E, 3.7.-1E to 3.7.16E and
3.8.1E to 3.8.2E) as if they were guidance.
…
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