BANKS and brokers could face a new wave of costs related to payment protection insurance (PPI) and other products sold to customers, after a judge said hidden high commissions on sales can be unfair on customers.
The Financial Conduct Authority (FCA) is looking into the judgement from the Supreme Court in November 2014, which found a customer was unfairly treated by Paragon Personal Finance, because the undisclosed commission charge ran to thousands of pounds. This was deemed to invalidate the deal under the terms of the Consumer Credit Act 1974.
But the judge did not define the level at which a commission should be disclosed, or what constitutes an unfair fee.
As a result, the FCA is still working out how to respond to the ruling.
It plans to issue a more detailed judgement over the summer.
The court case revolved around LLP Processing, a firm which sent an unsolicited leaflet to the complainant Susan Plevin. Paragon was one of the lenders on LLP’s books, and Plevin entered into a credit agreement in 2006 for nearly £40,000, of which £5,780 was an upfront PPI premium.
More than two-thirds – 71.8 per cent – of that premium was taken in commission, with LLP receiving £1,870 and Paragon taking £2,280. Neither amounts were disclosed to Plevin.
In his sole judgement on the case, Lord Sumption wrote failing to disclose this led to a “sufficiently extreme inequality of knowledge and understanding”, adding there was a “tipping point” at which commissions became so large it rendered the relationship way beyond what was fair.
Tim Wallace, Catherine Neilan