Resolving PPI complaints – pay them all, defend in Court or request a FOS hearing?

Barclays announced yesterday that it will reimburse all customers who complained about the sale of their PPI before 20 April in full (plus 8% interest) without any further investigation of the individual claims.

At the same time, the FSA has granted Barclays and two others more time to resolve their complaints.  To add to the confusion, reports have emerged of successful defences of PPI claims in the County Courts deployed by Lloyds Banking Group.

Barclays is the first bank to have made such a move and it appears the bank considers this will be the best way to address the back log of complaints which mounted up pending the outcome of the BBA's judicial review.  After the judgment was handed down on 20 April, Barclays set aside £1billion to cover the cost of compensation. Other banks also set aside substantial sums, including Lloyds Banking Group (£3.2bn), RBS (£850m) and HSBC (£269m).

While Barclays' announcement is a significant one for consumers, particularly as the other banks may follow suit, for those consumers who have complained since the judicial review decision (i.e. after 20 April) or were sold PPI by another bank, their complaint will be investigated and assessed on its individual merit.  The rules dictate that a PPI complaint be assessed in accordance with DISP App3.  If a consumer is unhappy with a bank's final response, they can choose whether to pursue their complaint via FOS or in a County Court.  Despite the new rules and the judicial review finding, and the costs involved, substantial numbers of County Court claims are being issued.  There have been two recent judgments reported following the judicial review: Amanda Bishop v Lloyds TSB Bank and Cudahy and Liburd v Black Horse Ltd. In both, the consumers' claims were dismissed and orders made for the consumers to pay the lender's costs.

In Bishop, the District Judge held that the consumers "recollection of events was at odds with the documentation" and the financial implications were "clear from the documentation and that if she had read them it would have been clear to her and in particular the right to cancel".  The 65% commission was considered to be a potential "bad bargain" but was balanced by the "policy benefits" for the consumer.

In Cudahy, the Judge held that the consumer's recollection of events was "sketchy" and that it had been made clear by the seller and the documents that the PPI was optional.  The Judge considered that the consumer's decision to decline more expensive cover in favour of cheaper life cover was the instruction that she wanted PPI.

These cases provide a clear message that testing evidence in a full (oral) County Court hearing, including detailed cross examination of the claimants' allegations, creates a real opportunity to defeat some PPI claims. 

By comparison, the FOS is free to complainants and the success rate for consumers is much better (66% of PPI compliants were upheld in the year to March).  Banks that wish to defend complaints before FOS might try to copy the successes achieved in Courts by requesting oral hearings before the Ombudsman.  In its annual review, the FOS reported that it has held only 20 oral hearings.  With its maximum award limit increasing to £150k and indications that PPI complaints could fail when properly tested, the FOS ought to be more amenable to the idea.

The FSA also announced yesterday that it is relaxing the time limit rules for PPI complaints handling by Barclays, Lloyds Banking Group and RBS.  Normally complaints would need to be handled within eight weeks but the FSA has decided as a temporary measure that complaints put on hold during the judicial review must be settled by the end of August; complaints made after the end of the judicial review but before the 31 August must be dealt with within 16 weeks and those received after the end of August must be dealt with in 12 weeks.  After this, the normal eight week timeframe will apply.