PPI claims continue to linger around the industry and whilst we
await the Financial Conduct Authority's (FCA) next move, there
has been another important decision.
In Brookman v Welcome Finance Services Limited, the
Brookmans were sub-prime borrowers who entered into three
sequential regulated consumer credit agreements with Welcome
Finance Services Limited (WF). Each agreement consolidated the
previous one. The Brookmans took out PPI in relation to the first
two agreements. WF received 45% of the premiums as upfront
commission and a further profit share comprising 44.25% of all
premiums for the policies it arranged with the insurer. These
payments were not disclosed to the Brookmans. They brought claims
of, among other things, unfair relationship pursuant to s140A-C of
the Consumer Credit Act 1974 (CCA).
The County Court, applying the Supreme Court decision in
Plevin v Paragon Personal Finance Ltd, and considering the
three categories of cause of unfairness in S140A(1) CCA held
The terms of the agreement - were not
intrinsically unfair, despite the PPI premiums being expensive. The
Brookmans knew of, and were content with, the amounts of the
premiums and monthly payments. Although the price did not make the
relationship unfair, it could still be relevant to the issue of
unfairness under s140A(2) CCA.
The way in which the creditor exercised or enforced its
rights - although rolling over large parts of the capital
payments for both PPI policies and interest thereon into each
consolidated agreement was onerous to the Brookmans, again that did
not in itself give rise to an unfair relationship. It could however
be relevant under s140A(2) CCA.
Other things done or not done by the creditor
- WF's failure to disclose the fact and amount of commission
did cause the relationship between the parties to be unfair as it
lead to inequality of knowledge and understanding of the parties,
was clearly relevant to the value of the policies and the wisdom of
buying them. The failure to disclose prevented the Brookmans from
making a properly informed decision.
The court further held, as had Plevin, that it was not
necessary or appropriate to identify a threshold beyond which the
amount of commission is such that non-disclosure automatically
occasions unfairness. The question in each case is not whether the
amount of commission has exceeded some general limit beyond which
non-disclosure constitutes unfairness as a matter of law. Rather,
it is whether on the facts of the particular case, and having
regard to all relevant matters, the relationship between the
parties is unfair.
Exercising its discretion under s140B CCA, the court awarded the
Brookmans a refund of all payments and the remission of all
subsisting liability over and above Ł1,500, being the
approximate cost of a pay-as-you-go policy.
Appropriate redress in such cases will be fact specific. In
Plevin, it was the full amount of the premium plus
interest. The FCA in its October 2015 Statement on PPI proposed
rules and guidance such that failure to disclose commission of 50%
or more would give rise to an unfair relationship and that the
redress should be the difference between 50% of the premium and the
sum actually paid plus interest. The court chose not to follow
either route on this occasion.
This article was originally published on Motor Finance
in January 2016.
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