Barristers from St John’s Buildings are claiming that consumers could be underpaid by billions of pounds if banks follow the financial regulator’s guidance on Payment Protection Insurance (PPI) payouts.
The Financial Conduct Authority (FCA) is ignoring legal cases which mean consumers may be owed around £14bn more than under its own guidelines, the barristers have alleged.
“Consumers could be forgiven for asking whose side the FCA is on. These figures reveal that the UK public are being misled by the banks, with potential compensation on average four times the amount suggested by the body supposedly looking after consumers,” St John’s Buildings’ Elis Gomer said.
Read more: The Terminator delivers £3bn hit to big banks as PPI costs continue to rise
A landmark Supreme Court case in 2014, known as Plevin, found that consumers who were sold PPI which had extortionate commissions included – which they were not aware of – could claim that this was mis-sold.
A follow-up to this case held that the consumer could reclaim the full cost of the commission. But the FCA has since recommended that banks only pay out the difference between the commission which was charged and 50 per cent of the premium. So if a customer was charged a 70 per cent commission, they would only get 20 per cent pack.
With the average commission percentage on PPI policies standing at 67 per cent, according to St John’s Buildings, banks’ exposure could quadruple if they followed legal precedent compared to if they followed the FCA’s guidance.
Gomer said it was questionable whether the FCA was being “consistent with its strategic objective to ‘secure an appropriate degree of protection for consumers’”.
Read more: Barclays faces £1.1bn High Court lawsuit over payment protection insurance (PPI) mis-selling
According to Gomer, banks are paying out the lowest sum possible under the FCA’s rules – but there have been cases where savvy consumers have challenged this to claw back the full cost of the commission, and have had their case settled for higher amounts behind closed doors.
The FCA declined to comment beyond statements it had already made. In a policy document last year, it said it was “exercising regulatory judgement” and believed that its approach was “fair and appropriate”, though it noted that “courts might take a variety of approaches to redress on individual cases”.
In total, more than 50m PPI policies have been sold, according to the FCA. Consumers have until 29 August to claim compensation for mis-sold policies.
Read more: PPI complaints rocketed before City regulator set 2019 claim deadline