THE IMPACT OF PARAGON v PLEVIN
The significance of Paragon v Plevin relates to the concept of “unfair relationship”. To be technical this refers to Section 140 of the Consumer Credit Act 1974. The Court decision in 2014 was the first time that this Section of the Consumer Credit Act had been challenged to such a high judicial level.
The circumstances briefly were that at the time of sale Mrs Plevin was a widowed College Lecturer age 59 living in her own house with a mortgage and various unsecured personal debt. She responded to an unsolicited leaflet put through her letterbox by an independent Credit Broker called LLP Processing UK Ltd. By the time of the Court case that Company had gone into Liquidation.
In short, this lady took out a mortgage which went through Paragon Personal Finance Limited. It was a loan paid over 10 years. Included in the same was Payment Protection Insurance with a lump sum premium of £5,780. Accordingly her loan of £34,000 was increased to £39,780.
Of the premium of £5,780 it is incredible to state that 71.8% was taken as commission. This was transmitted to Paragon who effectively retained £2,280 and sent LLP £1,870.
The main point is neither the amount of this commission nor the identity of the recipients was disclosed.
Readers will be astonished to note the commission that was involved and effectively the profit margins involved. Paragon are described as a sub-prime Lender, meaning that anybody who uses them usually has had some problem with finance. Accordingly, interest rates are more expensive. We are not saying that Mrs Plevin had such problems but she was sold that product. If she had not had financial problems and was sold this product the sale was even worse.
You will see, with such an add-on, to which a significant interest would have been paid per month this lady paid significantly more that she needed to pay and indeed, significantly more than was disclosed. You will of course note that she was a Headmistress and as such it is reasonable to presume that she had reasonable, if not significant sickness and illness benefit.
LLP were the agents acting on behalf of Paragon. There were effectively two elements of unfairness :-
- The non-disclosure of the amount of the commissions;
- ……………………. of any of those involved to assess and advise upon the suitability of PPI for her needs. In particular in this case the PPI only covered half the term of the Insurance, she had no dependents, she already had Life Insurance and her terms of employment included general Sickness and Redundancy Benefit.
It is easy to see why this was regarded as an unfair relationship.
If a client intimates against a Lender who sold PPI they are accordingly entitled to receive not only all the payments that they made on the improperly sold PPI. It is clear that they should not suffer due to the fact that commissions were paid.
In many a case the Banks/Financial Institution have looked at all commissions that were paid and ensured that these were reimbursed. On a number of cases it is quite clear that commissions paid were not taken into consideration.
Again, this is something that any consumer considering the merits or otherwise of PPI should look into. It is a more difficult and complex issue than the basic mis-sale of PPI. It is one of the main reasons why a reputable Claims Management Company or Solicitor might well be instructed. That is the choice of the consumer.Read More
We hear little of the Chief Executive of the Lloyds Group these days on PPI matters. He appears to be doing a very good job in all other areas. When he originally took his post he was exceedingly critical of Claims Management Companies. Indeed, he suggested elements of dishonesty. It has always baffled me how anyone intimating themselves, or using a Claims Management Company or Solicitor Company to intimate a PPI claim could be described as being potentially fraudulent. If a Policy did not have the product it would be refused. If the product had PPI and the Bank were of the opinion it was fairly sold how could anyone suggest the intimation was fraudulent.
There are no doubt people that sold PPI have lodged claims when they frankly hadn’t a clue what was going on. There are no doubts at all that people who have no idea whether they had PPI have intimated claims. In many respects this goes to the route of this grossly mis-sold product. Lack of discussion with or information provided to the consumer.
With regards to the fine on the Lloyds Banking Group, this related to Lloyds Bank plc., Bank of Scotland plc., and Black Horse Limited. This related only to the method by which they treated customers, unfairly when handling Payment Protection Insurance complaints. Between March 2012 and March 2013.
It was estimated that during that period 2.3 Million PPI Policies were investigated and some 37% of the complaints were rejected at first instance. The requirement from the Financial Conduct Authority is that Firms assess these complaints impartially are naturally allowed to reject unfounded claims (In other words the culprit Organisation is to act as an impartial Judge & Jury).
However, in March 2012 the guidance to Lloyds instructing complaints handlers at Lloyds was that the overriding principal when assessing complaints was that Lloyds PPI sales process was compliant and robust unless told otherwise. They described this as “the Overriding principal”. Much of this was brought to light by an article in the Sunday Times some years ago. In short, a Sunday Times Reporter obtained a job at the Lloyds Complaint Unit and ascertained how they dealt unfairly with these complaints.
It was accepted by the Financial Conduct Authority that some Complaint Handlers relied on this overriding principal to dismiss customers’ personal complaints and accounts of what had happened during the PPI sale or indeed did not fully investigate them. In many cases Lloyds who were meant to contact customers to check over their version of events did not do so.
At the time, it was commented by the Financial Conduct Authority that “The size of the fine today reflects the fact today that so many complaints were mishandled by Lloyds. Customers who have already been treated unfairly once by being sold PPI were treated unfairly a second time and denied the redress they were owed. Lloyds conduct was unacceptable”. Examples of how customers lost out as a result of the Lloyds failings included:-
- Complaint Handlers justified the decision to reject customers’ complaints on the basis that the sales process used by Lloyds was robust, as directed by the Overriding principals. This was when Lloyds knew there was significant process failures and indeed mis-selling.
- Some consumers had their complaints rejected on the basis they had been “fully investigated” with “appropriate weight and balance consideration given to all available evidence”. This was not the case.
- A customer’s account of what had actually happened was not always considered in a balanced way. The evidence of the Bank paperwork was preferred.
- Due to poor contact of the consumer, or indeed no contact some customers who clearly would have provided further evidence were not given that opportunity.
Since that date the Financial Conduct Authority has appointed an Independent body to oversee the remediation process. However, this was over 2 years ago. We are still receiving information that the remedial process is still underway. The obvious concern for any consumer is that whereas they are advised to simply “sit back and await for the Bank to re-look at cases” there is now a time bar. For how long do clients sit and wait?
As a subscript to this post, as recently as 22nd July 2017 the Guardian newspaper reported Lloyds Banking Group will take another hit from payment protection insurance mis-selling this week, taking its bill for the scandal close to £18bn.Read More
Fines imposed on members of the financial industry such as Banks or Brokers – Some consumers are surprised when you mention fines! Why Should they be surprised?
This article is not one for light evening reading it is to advise of some of the fines imposed, the seriousness of the same and the amount of this considerable problem of which the Guardian Newspaper believe that one out of 5 claims only have been made.
In previous blogs I have mentioned the fine to Clydesdale Bank of 20.6 Million. Clydesdale Bank and their sister Bank – Yorkshire Bank were fined for, including providing false information about complaints to the Financial Ombudsman Service, meaning that many of the 126,600 PPI complaints that Clydesdale Bank made a decision on between May 2011 and July 2013 up to 42,200 may have been rejected unfairly.
The Financial Conduct Authority also says that some 50,900 upheld complaints may have resulted in the consumers receiving inadequate redress.
Of considerable concern to the Financial Conduct Authority was that Clydesdale’s failings mainly occurred after April 2011 which was the date when the High Court effectively rules that it was unfair to place cases on hold and providers had to follow a list of rules to proactively find and compensate consumers who were mis-sold.
Lloyds Bank were fined £117 Million in a decision published in June 2015 in respect of their failures between March 2012 and 2013. During that period more than 2.3 Million PPI Policies were considered and 37% of claims were rejected.
Lloyds were hit with fines due to the fact that they had issued guidance to the complaint handlers that the overriding principal when assessing complaints was that Lloyds PPI sales were compliant and robust. This was defined as the overriding principal.
Lloyds did not advise their own complaint handlers of know failings identified by them in their sale process. Many complaint handlers happily followed in this Overriding Principal to unfairly reject the complaints of the consumers.
Here are some of the others:-
- EGG – fined £721,000 in December 2008 for serious failings in its credit card PPI sales by telephone between January 2005 and December 2007. The FSA found failings in approximately 40% of telephone sales of credit card PPI made by EGG in a 2 year period. When customers said on the phone they did not wish PPI the Firm directed its sale staff to use techniques to persuade the customers to take the Insurance called “objected handling”. These techniques included over-emphasising the positive feature of the PPI or telling the customer they could take the PPI for a free period and cancel it later if they didn’t want it. In some cases, even when the customer did not consent, PPI was applied to their credit card anyway.
- Alliance & Leicester (Santander) were given fines of £7 Million in October 2008 for serious failings in its PPI telephone sales between January 2005 and December 2008. Alliance & Leicester (Santander) did not make it sufficiently clear that PPI was optional and it trained its staff to put pressure on customers where they queried the inclusion of PPI in their quotation or challenged Advisors recommendations.
- 5 Motor Retailers: GK Capitals Group Limited; George White Motors Limited; Ringways Garages (Leeds) Limited; Ringways Garages (Doncaster) Limited and Parks of Hamilton (Holdings) Limited – Fined £175,000 in August 2008 for exposing 2,175 customers to the risk of being sold unsuitable PPI Policies.
- Liverpool Victoria fined £840,000 for serious failings in the sale of single premium PPI by telephone.
- Land of Leather fined £210,000 for not having effective monitoring or training of PPI sales. In addition, their Chief Executive was fined £14,000 for failing to properly oversee the sale of PPI by the Firm.
- HFC Bank (also trading as Household Bank) and Beneficial Finance fined £1.085 Million for putting customers at an unacceptable risk of being sold an unacceptable Policy.
- Black & White Group Limited (now in Liquidation). This would have led to a fine of £2.2 Million.
- Regency Mortgage – fines of around £56,000
- Loans.co.uk – fined £455,000
- Redcats (Brands) Limited – fined £270,000
- GE Capital Bank – fined £610,000
- Hadenglen Financial plc – fined £133,000 and their Chief Executive was fined £49,000
- Swinton Group – fined £770,000
- CT Capital Limited (CT Capital) – fined in 2000 – £360,900 (in the case of CT Capital between May 2011 and November 2013 dealt with some 6,669 PPI complaints). CT Capital failed to put in place complaint handling processes to deal with PPI complaints appropriately which resulted in consumers missing out on redress payments to which they were entitled. The effect on individual consumers was potentially significant. The average redress payment made in respect of a fully upheld complaint during that period was £5,959. It appears that despite being aware that specific provisions governed the handling of PPI complaints had come into force in December 2010 CT Capital failed to put in place processes designed to follow these provisions until November 2011. Even after that time CT operated flawed Policies.
Clydesdale Bank – fined £20,678,300 for serious failings in its PPI handling. In the Clydesdale’s case the Judicial Review decision in April 2011 they implemented in mid-2011 inappropriate policies to deal with complaints. In effect its complaint handlers were not taking into account all relevant documents when deciding how to deal with complaints. In addition, between May 2012 and June 2013 Clydesdale provided false information to the Financial Conduct Service in response to requests for evidence of the records Clydesdale held on PPI Policies sold to individual consumers. A team within Clydesdale’s PPI complaint handling operation altered certain system print outs (in a small number of cases) to make it look as if Clydesdale held no relevant documentation and deleted all PPI information from a separate print out listing the products sold to the consumers. These practises were not know to or authorised by Clydesdale PPI Leadership Team or more senior management.Read More