Payment Protection Insurance (PPI)

• Published date: 23 February 2023
• Subject Matter: Finance and Banking, Consumer Protection, Insurance, Financial Services, Consumer Credit, Insurance Laws and Products
• Law Firm: Gatehouse Chambers
• Author: Mr Dr. Robert Whittock

Payment Protection Insurance (PPI) is an insurance product that enables repayment of credit if the borrower is unable to service the debt due to a change in circumstances (e.g., sickness, loss of employment or death).

PPI was widely sold by brokers, banks and other credit providers as an add-on to the credit agreement (e.g. credit card, loan, mortgage, hire purchase, catalogue credit and overdraft).

In the UK 64 million PPI policies were sold. Whilst some date back to the 1970s the majority were sold between 1990 and 2010. ¹

Complaints about the sale of PPI have resulted in lenders repaying more than '33 billion to borrowers.¹

The PPI complaints were originally focused on mis-selling but following the Supreme Court case of Plevin² in 2014 subsequent complaints have been in relation to non-disclosure of high levels of commission and profit share.

Plevin ²

In Plevin, the Supreme Court considered that the borrower was aware that some commission would be paid to the broker since it was stated in the borrowers' guide and there was no other way that the broker could be paid for their services in selling the PPI Policy. ³

The Court held that it was not possible to state a precise or universal test when assessing whether a relationship between lender and borrower was unfair pursuant to s.140A Consumer Credit Act (CCA) 1974 since it must depend on the Court's judgment of all the relevant facts. ⁴

The Court also held that at some point commissions may become so large that the relationship cannot be regarded as fair if the borrower is kept in ignorance. Whilst the Court was unable to say where the tipping point may lie the commissions in Mrs. Plevin's case (71.8%) were a long way beyond it.³

Following the Supreme Court decision the case was remitted to the County Court. On 2 March 2015 His Honour Judge Platts held that the borrower was only entitled to a refund of the entire commission element of the PPI premiums plus interest. This has become widely known as the Platts Method.

Financial Compensation Authority (FCA) Step 2 Methodology

As a result of the Plevin, on 29 August 2017 the FCA Policy Statement 17/3 came into effect which imposed new obligations on lenders concerning borrowers PPI complaints.

The FCA Step 2 Methodology requires the lender to pay Redress to the borrower in respect of the non-disclosure of commission and profit share above 50% of the PPI premium. The sum to be paid is calculated as 50% of the commission and profit share plus contractual...