PPI claims resurgence on the horizon

A North East law firm is warning of a rush of new claims for mis-sold payment protection insurance (PPI) policies following two high-profile court judgments.

TLW Solicitors, which specialises in financial mis-selling, has launched a new service to handle a predicted surge in compensation claims against lenders over hidden commission costs within PPI premiums.

To tackle the potential surge, and the government's hints at a compensation deadline for PPI claims, the Newcastle-based firm aims to support claims companies in holding lenders accountable for this latest breach of the rules by creating a new division.

Just as lenders were anticipating a winding down of mis-sold PPI compensation pay-outs, the sector is now gearing up for a second wave of claims and resubmissions of previously rejected cases after the rulings in two high profile court cases unearthed potential new ground for PPI claims.

In Plevin v Paragon Finance, the Supreme Court ruled that if a large element of commission is contained within the price of a PPI premium - in this instance 71 per cent - and the customer was not made aware of the fact, then there was an 'unfair relationship' between customer and lender.

Meanwhile, in McWilliams v Norton Finance, the defendant brokered a £25,000 loan as well as a PPI policy. Norton received over £4,000 in commission from the lender and PPI insurer, which the claimant was not informed about.

The Court of Appeal found that the claimant could not know if they were getting the best deal, while Norton's desire to make maximum commission may have caused it to breach the duties it owed to its customers.

As a result, TLW's senior partner, Peter McKenna, said that proving PPI premiums should be returned in these cases may require significantly more legal expertise than previously thought, given the complex nature of commission arrangements and the legal basis for the claims.

'While previously PPI compensation claims were fairly straightforward, winning potential new cases on the basis of high levels of commission fees is likely to require input from legal experts.

'Now that the issue has been brought to the attention of the Supreme Court the fallout for lenders could be huge and thousands of individuals may be looking into their own policies.'

McKenna added that the issue of transparency over commission fees may also come into question beyond PPI policies and into other aspects of financial services.

McKenna continued: 'Both cases have created new grounds for PPI compensation claims alongside the existing arguments, which largely relate to the suitability of the policy/individual.

'The PPI premium must be shown to contain such a level of commission as to make the relationship unfair. Although the court stated that 71 per cent was way beyond a fair level, a specific level over which commission becomes unfair has not yet been set out legally.

'The likelihood is that the majority of PPI premiums will have had a level of commission so we must establish what those levels were to see whether a client is entitled to compensation and to work out the damages,' he added.

On 2 October the Financial Conduct Authority (FCA) published its long awaited statement on the rules and guidance they are to consult on, following the Supreme Court's decision in Plevin v Paragon Finance. It had also confirmed the proposed deadline to bring PPI claims within two years from spring 2016.

McKenna commented that the FCA's statement raises a number of compliance and commercial considerations for claims management companies with large PPI operations, and that a failure to deal with those issues could have far reaching and costly consequences.

John van der Luit-Drummond is deputy editor for Solicitors Journal
john.vanderluit@solicitorsjournal.co.uk | @JvdLD