Paymentshield to be sued for slashing commission

6 February 2012 | By Tessa Norman

A broker is taking legal action against Paymentshield, alleging that its decision to cut his trail commission from 27% to 5% is a breach of contract.

In October 2011 Mortgage Strategy reported that Paymentshield had informed a number of brokers that their commission would fall to 5% from November as they had not submitted any business to it in the past 12 months.

The insurance provider said at the time that such firms had become dormant and were therefore subject to a dormancy clause in its terms and conditions.

The terms and conditions state: “Where your agency becomes dormant or closed to new business, we reserve the right to revert commission levels to dormant agency rates.”

But David Nicholson, director at D&D Consultants, alleges the contract is unfair and would have no standing in court because it fails to define the term dormant agency or to publish dormant agency rates.

He says: “This clause has no defined terms and is therefore open to interpretation and as such constitutes an unfair contract. I am informed by
my solicitor that it would not stand up in court.

“The cut in my commission will cost my business £10,000 a year, which is the difference between me managing to stay afloat and being forced to shut up shop.”

He adds: “This commission has helped me through the tough times, but as I see it, Paymentshield is now trying to take almost all of it from me.”

He has been in correspondence with Paymentshield for some weeks and after his latest letter threatening legal action went unanswered for more than seven days he instructed his solicitor to begin legal proceedings last week.

A spokeswoman for Paymentshield says: “We can assure you that we treat every complaint against Paymentshield seriously.

“However, since Mr Nicholson has decided to seek legal advice we are unfortunately unable to comment on his specific situation.”

Paymentshield has told brokers that they can reinstate their commission to its original rate if they submit one policy per month for six months to the firm, as that would mean they would no longer be classed as dormant.

But Nicholson and other brokers say the provider has become increasingly uncompetitive in recent years.

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Readers' comments (11)

James | 6 Feb 2012 8:53 am
Everybody in the industry quoting Paymentshield cover knows they've been uncompetitive for some time. Paymentshield know they're not competitive and were supposed to be taking steps to rectify the situation. The last 10 or so quotes I did at the back end of last year not one of them could be placed with this company as they were far to expensive in the post code areas I cover. I was also contacted by one of their salespeople by phone offering me a quote for my own B&C and the only way they know I exist is I used to have one of the policies in the past which I changed because it went up too much. I hope the threat of legal action has some impact but if this is costing one broker £10k and they're doing this to a lot of brokers they'll try and fight the case as its obviously worth a lot to them.
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Anonymous | 6 Feb 2012 9:24 am
I had a Paymentshield agency as a sole trader but when I became a limited company, I was no longer able to submit business and a new agency was created. At the time, Paymentshield said I could not combine the old agency business with the new one and as such, no new business was submitted to the old agency. Business has been submitted to Paymentshield under the new agency but not for some time as their rates are too high and clients were being drawn into the banks’ offerings.

When I contacted Paymentshield, they said I had to submit cases to them to go back to the previous commission rate. This is not something I want to do as it is not best for the client. Paymentshield are not impressive.
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Mark Farmer | 6 Feb 2012 11:45 am
Well done David Nicholson!! I am in totla agreement with him and applaud his actions. paymentshield have become increasingly uncompetitive over recent years. What was once an excellent provider, and the Brokers first port of call, has changed beyond recognition.

Go get em' David!!!
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Luke Atkinson | 6 Feb 2012 2:28 pm
I disagree completely.

Surely if Payment Shield have become so uncompetitive, during the annual reviews this broker conducts in order to earn his trail commission (after all that is what trail commission is paid for), the clients would be moved to a more competitive provider?

Or have I missed something here?
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John | 6 Feb 2012 4:25 pm
Whats the problem - if he never submitted any business then has he really lost out?
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Stuart Duncan | 7 Feb 2012 11:57 am
The problem, John, is that a commercial contract was originally entered into by Paymentshield that promised commission for continuation of their policies. The fact that an unelected and unaccountable quango has given them an excuse to break that contract is irrelevant. Furthermore, these are annually renewable policies, so this is not trail commission at all. Finally, no operation using a single insurer has the option to rebroke (where would they rebroke to?). It is reasonable to point out that a good broker will actively seek to get the best for the client, but that doesn't give Paymentshield the moral or legal right to break promises that were meant to be set in stone.

Some brokers only had Paymentshield as a
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David Nicholson | 7 Feb 2012 3:18 pm
Well said Stuart.

Also, what the news article does not state is that there is a very clearly defined, and unambiguous clause in the Agency Terms and Conditions that states that if the agency is closed, then commission will continue to be paid for as long as those policies remain in force. I instructed them to close the agency and they have refused to honour the Terms and Conditions.
It is because of these breaches of the Terms and Conditions that I have instructed solicitors, now that Paymentshield have failed to respond to my latest letter, for more than two weeks.
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Luke Atkinson | 7 Feb 2012 3:45 pm
Trail commission or renewal commission - either way if you review the policy annually as I'm sure all good and pro active brokers would, Payment Shields inability to remain competitve, would mean the broker would move the client away anyway.

Brokers who collect their proc fee, forget about the client post completion and work on front end business deserve to have their commission reduced.

And if an operation has made a commercial choice to only use a single insurer, usually motivated by an uplift in commission by agreeing to use them exclusively, surely ''best advice'' would be to advise them they could receive a better deal elsewhere and lose the commission when the client takes up a policy elsewhere anyway?
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Stuart Duncan | 7 Feb 2012 6:19 pm
Luke...and your argument if that was still competitive for that client?

I am utterly certain that most insurance providers, if not all, would certainly not advise the client to "get a better deal elsewhere" nor would Direct Line or all the other organisations who happily collect premiums/commissions year after year whether the product is competitive or not.

I am thankfully unaffected by this change, I just completely grasp the unfairness of it.

By the way, Paymentshield also have a big presence in the MPPI (ASU) market and it is very difficult to switch insurers without losing cover for a period of time on the reduncancy element.

Some networks work on a sole supply basis and an advisor has big issues if they wish to switch away from a network. It isn't about broker greed at all.

The other issue is expecting brokers to rebroke every year. Clients are perfectly free to request alternative quotes; they do have rights in the matter, and options.
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Luke Atkinson | 8 Feb 2012 12:12 pm
Stuart - if they were competitive then the business levels submitted to them wouldn't have dropped to such a level whereby they would reduce the commission rates to that agency.

Regarding advising the client to move away to a more competitive deal, I was referring to the broker, not the provider.

There are plenty of ASU providers that will waive the unemployment exclusion within the 1st 90 days if you are transferring a policy from another provider - this usually only applies to applicants who are taking up the cover for the first time.

If the networks have chosen the route of a sole provider then this would have been a commercial decision and is not particularly TCF - having worked for networks myself, you could always request to go off panel?

Its not about rebroking every year, its about conducting a review with the client, if you are reviewing their protection needs with an annual review then you would be moving them away from Payment Shield anyway.

I agree that Payment Shield has broken the terms of the contract however if they are that uncompetitive which is preventing new business and you are conducting regular reviews with your clients, you would be placing the business elsewhere and receiving commission from another provider, would you not?

Lets face it, mortgage brokers aren't run off their feet writing mortgage business at the moment so they have no excuse not to be conducting regular reviews.
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