decisions in lenders’ favour.
There has been a further
spate of judgments in recent months arising out of the high volume
of payment protection insurance (PPI) mis-selling claims being
brought against lenders. I reported on one such judgment in
Black Horse Ltd vs Speak in the September 2010 issue of
Five recent decisions,
Harrison vs Black Horse Ltd, Snailham & Elliott vs
Black Horse Ltd, Vernalls vs Black Horse Ltd,
Morris vs Black Horse Ltd and Kerry vs Black Horse
Ltd, have all gone in favour of the lender. Some common themes
arise from the decisions:
- It is very difficult to
persuade the court there is an unfair relationship between the
parties (under the Consumer Credit Act) where lenders ensure their
internal procedures and systems are compliant with the Insurance:
Conduct of Business (ICOB) rules. Compliance with those rules is
undertaken for the very purpose of avoiding the sorts of complaints
that arose in these types of cases. Many of the complaints related
to the alleged failure of the lender to undertake a proper
assessment of the borrowers’ demands and needs and failing to bring
certain matters to the borrowers’ attentions. The courts concluded
in these cases that the use of a demands and needs questionnaire
had meant the ICOB rules had been satisfied.
- The borrowers had a choice
when purchasing PPI and an option to cancel. The lender’s
documented procedure clearly showed PPI was not compulsory, despite
what some of the borrowers alleged. There was no reason why the
lenders’ employees would suggest it was compulsory.
- The commission on a PPI
policy and the cost of a policy were irrelevant to a mis-selling
claim and to the question of an unfair relationship, as was the
fact the lender’s employee was paid a bonus. The courts held that
the amount of the commission earned did not act as an inducement to
the lender or its employee, nor give rise to a material conflict in
breach of the ICOB rules.
- There is no common law duty
to advise more widely on the issue of the cost of the
- An absence of first-hand
oral evidence from the lender’s sales representative wasn’t fatal
to the lender’s case, even if there was a factual dispute. Some of
the oral evidence given by the borrowers was inconsistent with
their witness statements or was unconvincing. The lender’s
documented written procedure, and evidence of the training that
employees were put through, was preferred.
These are robust decisions
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The upshot is that where a
lender’s internal procedures are compliant with ICOB, and there is
nothing to suggest that those procedures were not complied with, it
will be very difficult for borrowers to succeed on a mis-selling
However, it should be noted
that Harrison vs Black Horse Ltd is being appealed to the
Court of Appeal on the issue of the cost of the policy and the
amount of commission.
Greg Standing is a partner in Wragge & Co’s
finance, insolvency, recoveries and sales team