Payment protection not always
mis-sold, says Jessica Goodman of Squire, Sanders &
Dempsey.
Reports of the BBA’s judicial review
in R (on the application of British Bankers Association) vs The
Financial Services Authority & The Financial Ombudsman
Service (2011), and the public announcements by banks, may
give consumers the impression that payment protection insurance was
always mis-sold, meaning a windfall for many. This is, however,
incorrect.
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It should not be forgotten that the
judicial review proceedings challenged the lawfulness of the
Financial Services Authority policy statement 10/12
(PS 10/12), which required firms to review retrospectively
complaints against standards that were not in force at the time of
the sale. The High Court decided that PS 10/12 was lawful
and must be followed. The provisions are estimates of redress that
may be paid. Each complaint will, however, still be assessed on its
own merit.
Consumers unhappy with the firm’s
final response can either refer their complaint to the Financial
Ombudsman Service or issue a claim in the County Court. Court
claims are not straight-forward as it (unlike the FOS):
- cannot take into account the
FSA’s principles – it can only take into account the strict wording
of ICOB or ICOBS (depending on the date of sale); and - has the benefit of live
evidence. Sworn evidence must be given and tested.
There have been two recent
judgments after the review and provisioning announcements. In
Amanda Bishop vs Lloyds TSB Bank plc (2011), the court
decided Ms Bishop’s “recollection of events was at odds with the
documentation”, which was “clear”.
In Cudahy & Liburd vs Black
Horse Limited (2011), the court decided that Ms Liburd’s
recollection was “sketchy”. They had a long time to consider the
documents and the court applied the High Court’s decision in
Harrison & Harrison vs Black Horse Limited (2010) to
the issue of cost and suitability. In both cases, the borrowers
were unsuccessful and ordered to pay the lender’s costs.
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By GlobalDataDespite PS 10/12 and the
judicial review, firms still face a substantial number of new court
claims, which are always backed by a conditional fee agreement
between the consumer and the solicitor and after the event
insurance. If the consumer wins or settles the claim, the success
fee is often 100%.
Costs are often more than £50,000
regardless of the level of redress. This is wholly disproportionate
– unhappy consumers can make a free complaint to FOS, whose
decision binds the firm (if accepted by the consumer). If it is not
accepted, the consumer can pursue a claim in court.
Given the high uphold rates at FOS,
consumers already in litigation who cannot recall the sale with
absolute clarity would be better off making a complaint either
directly to the firm or to the FOS. Prospects through one of these
avenues seem considerably better.
Jessica Goodman is an associate
at Squire, Sanders & Dempsey (UK)
