Business people negotiating a contract. Human hands working with documents at desk and signing contract.

PPI claims used to be made on the basis of mis-selling, however a landmark case (Plevin)[1] a few years ago brought in a new ground for complaint. In that case, failure to disclose a large commission to a customer on a PPI policy made the relationship between a lender and the borrower unfair under consumer credit legislation[2].

Now a new PPI claim case[3] has opened up the possibility of further claims being brought against lenders.

The premium

In June 2004, Mr and Mrs Doran entered into a £40,500 loan agreement with Paragon. £30,000 of that was a loan and the other £10,500 was to pay a PPI premium.  Paragon, received £7,985 in commission (including some profit share) from the insurer. This was 76% of the total premium.

Under the loan agreement, Mr and Mrs Doran would have been entitled to repayment of the PPI premium amount if they hadn’t repaid the loan 18 months before the end of its ten-year term. They issued their claim more than 13 years after the credit agreement and PPI policy had been entered into but less than five years after the loan had been repaid.

The issues

  1. Was the claim was time-barred, i.e. made too late[4]?
  2. Was the relationship between Mr and Mrs Doran, and Paragon was unfair?
  3. If the claim was successful, what should the remedy be?

Too late?

The judge decided that the claim was not time barred. Although Paragon argued that it should have been, based on the date that the loan agreement was entered into, the legislation looks back six years after the relationship has ended, not from when it begins.

Unfairness

The relationship was found to be unfair. Without knowing the level of commission, Mr and Mrs Doran couldn’t know that most of the money which they thought they were paying for a PPI policy was going to the lender.  They said they wouldn’t have entered into the policy if they’d known the commission was so high.

Plevin raised the point that at some point a commission is so high that it will be unfair if not disclosed. FCA guidance is that commission exceeding 50% cannot be justified.  There was no evidence that the level of commission received could be justified.

Remedy

The judge awarded repayment of the full amount of commission paid. This is significant as following Plevin the FCA issued guidance which allowed for just the ‘over 50%’ element, plus interest to be repaid.

Lender concerns

The approach adopted in this case means that lenders could face more claims from those whose claims had previously been rejected, and for larger payouts. However, we shouldn’t jump the gun.  This case is from a lower court[5] than Plevin and it’s likely to go to appeal.  Therefore, for the time being, the Supreme Court’s Judgement in Plevin, paired with the FCA’s guidance, will continue to be the guiding lights on this issue.

This blog post was written by Joshua Howells.

[1] Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 (12 November 2014)

[2] Section 140A of the Consumer Credit Act 1974

[3] Doran v Paragon Personal Finance (unreported)

[4] Under the Limitation Act 1980

[5] County Court (fourth tier) as opposed to Supreme Court


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.

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