Banks lose battle with the FSA
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The High Court has ruled today in favour of the Financial Services Authority in relation to the mis-selling of Payment Protection Insurance.
The British Bankers’ Association launched a judicial review in October in response to the FSA’s approach to the handling of PPI complaints.
The FSA suggested that retrospective compensation should be in place for the mis-selling of PPI, which would lead to up to £2.7bn in compensation being paid to 2.7 million people.
The ruling means all cases will now have to be judged on today’s regulations and not those at the time, which could have consequences for other areas of the financial services sector.
Since the BBA launched its legal challenge in October 2010, the FOS has been receiving up to 5,000 PPI cases each week.
Natalie Ceeney, chief ombudsman, says: “This judgment is very clear-cut – and it confirms that the ombudsman’s approach to PPI complaints is right. People have been waiting a long time while the banks’ legal action has been ongoing. I would now like to see financial businesses showing real commitment to sorting out their customers’ complaints efficiently and promptly.”
A spokeswoman for the BBA, says: “We are disappointed with today’s judgment and now need to consider the details of it very carefully as well as next steps, including whether it would be appropriate to apply for permission to appeal.”
The FSA says it welcomes the High Court’s dismissal of the BBA and Nemo Personal Finance’s legal challenge to its PPI measures.
It says: “Our primary aim has always been to get proper redress, once and for all, for those with genuine complaints.
“We believe this decision signals the end of years of poor complaint handling and will trigger a dramatic improvement in the way customers are treated when complaining.
“There have been more than 1.5 million complaints made about PPI since the FSA took over regulation of it in 2005. On average, firms have rejected around 60% of the complaints made to them, but some rejected almost all of them. However, the vast majority of complaints referred to the FOS are found in the consumer’s favour.
“However this is not the end of the process: the BBA and Nemo may seek to appeal the court’s judgment.”
The FSA has not put a waiver in place so firms must continue to deal with complaints where possible, including letting customers know they can refer their complaint to the Ombudsman if they are unable to progress it.
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Readers' comments (7)
Soothsayer | 20 Apr 2011 10:52 am
Whilst I have little sympathy with Banks, how can you retrospectively apply rules when they were applied as per the Regulator's rules at the time! Ridiculous and will see an end to many people getting any protection.
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Anonymous | 20 Apr 2011 11:35 am
When o when are the Banks going to be held to account and some organisation stop them from doing just what they want too. Any other Industry in the country doing what the banks have done with PPI would be all over the front pages and looking at serving time in jail how can they get away with this.
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Mike The Mortgage Man | 20 Apr 2011 12:08 pm
Does this judgement mean that i can sue the electrician that wired my house in 1965 for failing to meet the 2011 standards?
Whilst i have no sympathy for the banks nor the brokers that exploited their clients I have great concerns about this precedent for professional advisors.
A great day for the ambulence chasers.
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Steven Balmer | 20 Apr 2011 12:12 pm
Retrospective compliance audits are wrong and it is a very dangerous precedence to set, especially with no long stop. I was pleased to see the FSA have made some grounds, albeit minor, to shut down bulk generating complaint chasers. Why had there not been the same degree of fines as would no doubt befall any regulated person - yet more double standards?
The insurance industry has moved towards a blame culture and zero personal responsibility for applicants and this is a very poor practice which should be halted immediately. If a compliant sale was made, given obligations and best practice at that time, then protection must also be given to this industry.
The FSA and Ombudsman have a duel responsibility to be fair to ALL parties but it seems a lack of appetite exists to protect and promote the industry. Is this to further create a fear of compliance and drive out all but the wealthiest?
This feeds into the hands of claim leeches, who do not share the burden of regulatory costs and do not have to pay for failed claims irrespective of how speculative they are to begin with.
The banks have been slippery and self serving and it is worrying to see a regulator and ombudsman being drawn into the same mentality. I have never received a complaint and expect none, therefore have no vested interest other than what is fair and reasonable.
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Anonymous | 20 Apr 2011 12:46 pm
I have to agree with Soothsayer. I believe that this will harm the consumer far more than the banking industry. The vast majority of people with credit have inadequate cover in place to protect them if something goes wrong and this gives the 'reluctant masses' another reason to say no. The FSA should, quite rightly, be weeding out the bad practices/ practitioners and compensating those genuinely disadvantaged as it would appear to me that the only better off as a result of this ruling are the so-called compensation lawyers.
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Anonymous | 20 Apr 2011 12:52 pm
The BBA challenged the new rules as it feared they effectively acted as a “back door review”, applying the new principles and guidance to cases which pre-dated them. It further feared that such an approach could open the floodgates to other retrospective views of financial products. The potential cost to the industry has been estimated in the proceedings at £4.5 billion, and will inevitably mean the folding of some firms. The decision is a big disappointment for the BBA, and it will now have to consider carefully whether it is appropriate to apply to the Court of Appeal for permission to appeal Mr Justice Ouseley’s tightly scripted and detailed judgment. It will also have to consider how it advises its members to proceed in the interim, if it does decide to appeal.
Nicola Hoskins, professional support lawyer, Optima Legal
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Peter Gladdy | 20 Apr 2011 11:15 pm
I am very suprised at some of the comments made so far. This publication is concerned specifically with mortgages and, in particular, the mortgage intemediary market. The ruling very much concerns actions by bank's and not specific to the regulated mortgage market where there has not really been any notable mis-selling. We need to accept that there has been wide-spread mis-selling in the unsecured loan market, very specifically credit cards, and also the secured loan market and indeed much of this has been committed by the banks, many of whom have now withdrawn from offering PPI. Let's recognise what has happened, allow those that genuinely deserve compensation to obtain it and concentrate on the more important issues affecting the regulated mortgage market. Yes, there will be the addded diversion of 'ambulance chasers'but for the vast majority involved in the sale of PPI in conjunction with a regulated mortgage this will not be an issue.
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