The Supreme Court has made a landmark ruling in a claim for the failure to disclose PPI commission that could have implications for millions of credit consumers.
In 2006, Susan Plevin took out a £34,000 personal loan to consolidate her existing financial arrangements and was sold a PPI policy for £5,780 – the single premium for which was added to the amount of the personal loan. The personal loan and the PPI policy were both arranged with Paragon Personal Finance through a broker – LLP Processing (UK) Ltd.
Of the £5,780 that was added to the loan for the PPI premium, only £1,720 was paid to the under-writers of the policy (Norwich Union). Paragon Personal Finance kept £2,280 in commission for themselves and LLP Processing (UK) Ltd were paid £1,870 in commission for brokering the sale.
In 2010, Susan made a claim for being mis-sold PPI on the grounds that the PPI policy was only for five years whereas the personal loan was for ten years. As LLP Processing (UK) Ltd had gone out of business by 2010, Susan received a token £3,000 compensation from the Financial Services Compensation Scheme.
Having paid five years of interest on the premium for the PPI policy, Susan was dissatisfied with her token compensation. She sued Paragon Personal Finance and made a claim for the failure to disclose PPI commission – alleging that she would never have agreed to purchase the PPI policy if she had been made aware that 71.8 percent of the premium was going to be retained as commission.
Her case was heard at the Manchester County Court, where judges ruled that Paragon Personal Finance and LLP Processing (UK) Ltd had fulfilled their obligations with regard to commission payments. Susan appealed to the Court of Appeal, who found that by informing Susan on the paperwork that a commission was involved, Paragon was in compliance with the Insurance Conduct of Business Rules.
Susan pursued her claim for the failure to disclose PPI commission and took her case to the Supreme Court – where judges ruled that, under the Credit Consumer Act 1974, it was unfair for Susan to be charged such high a high percentage of commission without her knowledge. The judges agreed that Susan had purchased the PPI policy without having given her informed consent.
Handing down the landmark ruling, Lord Sumption said: “A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness in any relationship between a creditor and a non-commercial debtor. Any reasonable person in her position who was told that more than two thirds of the premium was going to intermediaries, would be bound to question whether the insurance represented value for money, and whether it was a sensible transaction to enter into. The fact that she was left in ignorance in my opinion made the relationship unfair.”
Susan´s case will now return to the Manchester County Court for reconsideration. The possible outcomes are a discharge of her loan in addition to a refund of her PPI premium plus interest, as under §140A of the Credit Consumer Act, Manchester County Court has the discretionary power to reduce or discharge a personal loan when it is established that the relationship between the debtor (in this case Susan) and the creditor (Paragon Personal Finance) is unfair.
The Implications of the Claim for the Failure to Disclose PPI Commission
The implications of the Supreme Court´s verdict in Plevin –v- Paragon Personal Finance is that millions of credit consumers will now be able to claim compensation if they were sold a PPI policy without being told how much of their payment(s) was being retained in commission.
Many credit providers received enhanced commissions for selling payment protection policies; and, if the level of commission was not disclosed at the time of the sale, it could be considered to have created an unfair relationship between the credit provider and the credit consumer.
The verdict of the Supreme Court reverses a previous ruling by the Court of Appeal (Harrison –vs- Black Horse Ltd) that said the failure to disclose commission levels did not constitute a breach of the Credit Consumer Act 1974 – a ruling which has often been used by claims handlers to reject PPI compensation claims made on the grounds that PPI was a bad-value product.
The verdict should also encourage credit consumers who have previously had their claims rejected to re-apply for PPI compensation. However, as making a claim for the failure to disclose PPI compensation is likely to result in the claim being contested, it is in consumers´ best interests to seek professional legal advice before contacting their credit provider.