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PPI – end of an era or a new chapter?

08 March 2012. Published by James Wickes, Partner

The FOS recently released its latest six-monthly figures showing the types and levels of complaints received by financial institutions.

The data, published on the FOS website at the end of February, covers consumer complaints handled by the FOS between 1 July and 31 December 2011. 

Significantly, of the 106,193 new complaints 'only' 46,700 cases related to PPI – a decrease of 53% on the 98,632 PPI cases received in the first half of 2011.  We expect this substantial decrease is a reflection of the impact of the 'special arrangements' permitted by the FSA, allowing banks more time to deal with their backlog of PPI complaints following the BBA's unsuccessful legal challenge

The figures published in respect of uphold rates are particularly interesting.  The data shows that, in the second half of 2011, the FOS upheld an average of 72% of complaints in favour of consumers, compared to 47% in the first half of 2011 – this reflects the obvious impact of PPI cases.  Natalie Ceeney, Chief Executive and Chief Ombudsman, has stated:

"The proportion of complaints that we have upheld in favour of the consumer – ranging from 6% to 100% - clearly highlights the difference in PPI complaints handling across major businesses over this period.  It also reflects the efforts made by some businesses to resolve quickly the hundreds of thousands of PPI complaints that had built up during the banks' unsuccessful PPI legal challenge."

The FOS has made it abundantly clear that it now expects all financial institutions who were involved in the sale of PPI expeditiously and pro-actively to resolve all outstanding complaints.  Despite the recent decrease in complaints in the second half of 2011, far from being the end of an era, the FOS expects to receive a record 165,000 PPI complaints in 2012/2013, seemingly because the banks are starting to catch up with their backlog of cases following the unsuccessful judicial review.

This anticipated hike in complaints activity will no doubt also be stimulated by the FSA's latest PPI guidance, published on Tuesday.  The guidance provides a blueprint for firms that sold PPI and are now starting to contact customers who may have been mis-sold their policy but have yet to complain.  The guidance sets out the necessary steps firms should take when writing to these customers and stresses the importance of these communications being transparent as to why the customer may have been mis-sold PPI and whether they could be entitled to redress.  In addition, the correspondence should explain what the customer needs to do, the timeframes involved (including any applicable limitation periods) and the need for the customer to act promptly.

Essentially, these letters form part of the root cause analysis process being undertaken by a number of firms to establish the cause of the PPI complaints and any recurring or systemic problems in the firm's sales processes requiring rectification.  Firms are required to consider what action must be taken in respect of customers who have not yet complained and adopt a process that provides them with the opportunity to claim redress in a way that adheres to the FSA's 'treating customers fairly' principle.  The FSA is insisting on these letters being free of any financial or legal jargon or marketing material.  It is also clear that the firm must stringently keep records of responses from customers and any subsequent actions taken by the firm.

Martin Wheatley, the FSA Managing Director, commented:

"This is important guidance and marks a key moment in the story of PPI.  So far the majority of payouts have been for complaints received before, or put on hold during, the judicial review.  However, we are now beginning to see firms considering how to treat customers who were mis-sold but have not complained.

We think that the redress due from this process may well exceed what has been paid so far, and that is why we are acting now to clarify our expectations… Historically, response rates for these types of exercises are low – sometimes as low as one in ten.  Therefore, if you receive a letter, it's important to consider your PPI purchase carefully …"

We understand the BBA and Association of Finance Brokers have both indicated their support for the guidance and – along with consumer group, Which? – have also been in discussions with the FSA to try to reach agreement on how best firms can communicate with affected customers, both in the context of these contact exercises and PPI more generally.

So, this is by no means the end of the PPI story and many chapters are yet to unfold. The latest guidance indicates that the FSA is anticipating (and encouraging) the introduction of thousands of new characters in the story – those customers that have somehow eluded the grasp of CMCs and who have not yet complained.