James Moore: It’s too soon to reach for a solution to the PPI headaches

Patience needed: The banking industry may want to put an end to the PPI issue but that could have dangerous consequences (Picture: Peter Macdiarmid, Getty Images)

Peter Macdiarmid/Getty Images

James Moore

27 May 2015

Should the financial watchdog introduce a cut-off point for complaints about payment protection insurance mis-selling?

The banking industry certainly wants it to. Its executives dream about such a move when they’re at their holiday villas.

Worryingly, quite a few regulators have started to fall into line with them. They seem to think they’d be rid of their PPI headaches sooner with a dose of deadline paracetamol.

They need to realise that doing so would be a dangerous move to make. It could even put the Financial Conduct Authority’s credibility in serious danger, as a recent court case demonstrates.

The FCA is “considering” the Supreme Court’s ruling on the case, which (as ever) is based on some complex questions of law.

However, the upshot is the failure on the part of a lender (Paragon) to disclose the PPI commission being paid to various parties by a borrower (Susan Plevin, a 59-year-old college lecturer) was unfair.

And that if she had known she might have decided not to take the policy out.

When you realise that 71% of a pretty dodgy PPI policy costing £5780 was made up of commission payments it’s easy enough to see why.

This problem was created by the FCA’s unlovely predecessor, the Financial Services Authority, which early in its history quite incredibly told insurers and brokers that they didn’t have to disclose how much commission was being paid as part of the cost of so-called “general insurance” policies.

It maintained people can easily shop around for this sort of cover — home insurance, motor insurance and the like — and this keeps commission payments low. So why bother to tell the consumer anything?

Here’s why: PPI is also “general insurance”. But it was typically sold as a part of a package on top of loans. Borrowers were often all but required to take it out to get their hands on credit and even where that wasn’t the case shopping around was made extremely difficult.

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As a result, commission payments went through the roof. Although courts prefer phrases like “sufficiently extreme inequality of knowledge” to describe what was going on we can easily substitute the term “rip-off”.

This morning the FCA said it is “studying” the judgement and its implications”. One of which may very well be that a number of rejected PPI complaints will have to be looked at again.

Another should be that any attempt to introduce a time bar on complaints is now dead in the water.

This judgement highlights the danger of doing so before all the dirty laundry from this grubby affair has been given a thorough airing. Regulators will just have to leave their deadline paracetamol in the medicine cabinet.

James Moore: It’s too soon to reach for a solution to the PPI headaches

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Business news in pictures - May 27