MasterCard faces one of the UK’s first class-action lawsuits

Class Actions in the UK

Class actions have long been a feature of the US legal landscape. But until October 2015 there was no genuine “class action” procedure in the UK. Then the Consumer Rights Act 2015 (“CRA“) introduced collective proceedings that can be brought in the Competition Appeal Tribunal (“CAT“) by representatives of consumers or businesses.

While previously the UK had “opt-in” group litigation orders, these were really just a means of organising litigation where large numbers of claimants were actively pursuing similar claims. The CRA permitted “opt-out” collective actions for the first time.  In “opt-out” cases anyone resident in the UK who is within the defined class is automatically included in the action unless they opt out. There is no need for the representatives to identify all of the members or specify their losses. If the claim succeeds, aggregate damages will be awarded to the group of claimants (as opposed to an individualised assessment for each claimant).

Initially, the Government’s intention was to exclude funders, law firms and special purpose vehicles from acting as representatives for either consumers or businesses in collective proceedings. But no such provision was incorporated into the legislation or the CAT rules.

The new CRA regime will apply retrospectively. Collective proceedings are to be expected in respect of competition law infringements which have historically been identified by the UK and/or EU competition authorities.

The consumer class action against MasterCard

MasterCard now finds itself faced with a legal challenge brought by a representative under the CRA on behalf of consumers, on an “opt-out” basis.

 Multilateral Interchange Fees (“MIFs“) 

The action relates to a previous finding by the EU Commission that MasterCard’s MIFs were kept unfairly high. Interchange fees are paid by a retailer’s card acceptance provider to a consumer’s card issuer (such as MasterCard) every time a card transaction takes place.  The retailer’s bank pays the retailer the cost of the goods/services, less a service charge that is largely determined by the level of MIF.  Retailers then pass on the cost of accepting card payments to their customers, by way of increased retail prices.  Interchange fees can be bilaterally agreed between the issuing bank and the retailers bank, or, the default fee established multilaterally by MasterCard (the MIF) will apply.  The MIF should be limited to no more than 0.3% on credit cards and 0.2% on debit cards.

European Commission decision

In 2007, the European Commission issued a decision against MasterCard which was applicable to cross-border transactions using MasterCard and Maestro credit and debit cards in the European Economic Area. It found that MasterCard’s MIF breached Article 101 of the Treaty on the Functioning of the European Union (“TFEU“), because they restricted competition between retailers’ banks and inflated the cost of card acceptance by retailers. The Article 101(3) exemptions were not satisfied.   MasterCard failed in an appeal and in September 2014 the European Court of Justice confirmed that MasterCard’s MIF restricted competition.

Current collective proceedings

The representative of the consumer proceedings is Walter Merricks CBE, who was previously the Chief Financial Services Ombudsman and is a non-practising solicitor. Mr Merricks has instructed a law firm to file the claim.  This includes a plan for managing the claim – it is said that “the proposed class of 46 million consumers will be communicated with through a claims website, newspapers, magazines and social media”. It is reported that the claim has been quantified at £14 billion worth of charges borne by consumers.  The claim relates to MasterCard’s MIF to 2008, as following the European Commission judgment referred to above, MasterCard undertook to reduce its cross-border MIF to the recommended level. A litigation funder will provide funding of up to £40 million to Mr Merricks and his legal advisers.

The Sainsbury’s Supermarkets Ltd v MasterCard decision

The recent judgment in Sainsbury’s Supermarkets Ltd v MasterCard Incorporated and others is likely to have an impact on this consumer action.  In 2012, Sainsbury’s filed a claim against MasterCard UK seeking damages for loss suffered by Sainsbury’s due to MasterCard’s infringement of competition law, through its setting of the UK MIF.   On 14 July 2016, the CAT awarded Sainsbury’s £68.5 million plus interest, ruling that MasterCard had restricted competition by setting fees on card transactions in the UK.

MasterCard tried to use the “passing-on” defence, asking the CAT reduce the damages award because Sainsbury’s passed the costs to its customers. The CAT ruled that “no identifiable increase in retail price has been established, still less one that is causally connected to the UK MIF. Nor can MasterCard identify any purchaser or class of purchasers of Sainsbury’s to whom the overcharge has been passed who would be in a position to claim damages“.  The CAT confirmed that MasterCard would have had to prove that there was a further class of claimant (the consumers) who could bring an action because the overcharge was passed on. The CAT’s ruling on this point will potentially cut the other way now MasterCard is facing a class action by the consumers like those who could not be shown to have suffered a loss in the Sainsbury’s case.

Best in class?

The introduction of “opt-out” class actions along the lines of the US model is controversial, with many fearing it will see the rise of a US-style litigious culture driven by entrepreneurial funders and law firms seeking out opportunities to certify large classes and generate returns as much for themselves as the class they purport to represent. On the other hand, the competition law context might be one in which individual consumers lack the incentives and resources to take on large organisations without a class-action regime, meaning wide-reaching anti-competitive behaviour would never be redressed. Now that the CRA has one of its first high-profile cases, there will be a chance to see what the pros and cons of the new procedure will be in practice.

Financial Ombudsman makes adviser pay for failing to stop £250,000 fraud on client

The Financial Ombudsman Service has sent a clear message to financial advisers that they must be vigilant to the risk of fraud when processing transactions on behalf of their clients. In its 23 August newsletter the FOS highlighted a recent case in which an adviser was ordered to pay fraud losses that the Ombudsman considered could have been avoided had the advisor heeded clear “alarm bells” that a transaction might be fraudulent.

The Fraud

In the case before the FOS, a financial adviser’s client lost £250,000 in bond savings. Scammers hacked her email account and instructed her adviser to transfer funds to an account said to be a solicitor’s bank account in Hong Kong. The adviser instructed the client’s investment provider to make the transfer. But the investment provider could not trace the solicitors firm, and so declined to make the transfer.

The adviser emailed the client to explain that the money could not be transferred. The fraudsters replied providing details of a UK bank account in the client’s name. Although the account was in the client’s name, it was not her account. The investment provider highlighted to the adviser that the account details were different to their records. The adviser confirmed they were correct and the transfer went ahead.

The investment provider later sent a letter to the client confirming the withdrawal, which alerted her to the fraud.

The Remedy

The client reported the fraud to the police and luckily was able to recover £170,000. She asked her adviser to reimburse the shortfall. The adviser offered to pay only 25% of the £80,000 residual loss. The client brought her case to the FOS.

During the FOS investigation it came to light that the client had been a customer of the adviser for more than ten years and always attended face-to-face meetings when she wanted to discuss her investments. The client therefore expected the adviser to have at least phoned her before acting on email instructions to transfer a significant sum. In its defence, the adviser confirmed that the client had recently been emailing about a mortgage, so the email regarding the transfer did not seem odd. As the client had previously worked in Asia, it seemed reasonable for her to use a bank account in Hong Kong.

The FOS noted that “as a finance professional, the adviser would have been aware of the risk of fraud and scams”. It decided that the nature and content of the communications with the fraudsters should have put the adviser on notice of the risk of fraud. It commented that, “having received an email asking for such a large sum of money to be transferred overseas, the adviser could have realised something was not right. If that wasn’t enough, we thought alarm bells should certainly have started ringing when the investment provider said they couldn’t trace the firm of solicitors. We found it hard to see why, at that point, the adviser hadn’t phoned [the client]”. The FOS concluded that the adviser should have prevented the fraud, and ordered it to make good the shortfall in the client’s investments.

With an estimated £755 million lost to financial fraud in 2015, including £121 million lost to fraudulent bank transfer scams, this ruling suggests advisers will be called upon to be the first line of defence for their clients. They need to make sure they are up to date with potential fraud risks and remain vigilant, or risk bearing the cost.

End in sight for PPI claims? FCA updates on cut-off deadline

In our blog post “Shift towards a PPI cut-off deadline reported” (24 June), we explained that internal documents had revealed that the FCA was backing a call by banks for the introduction of a two year cut-off for new PPI claims.

The official FCA announcement was made on 2 August 2016. It confirmed that the FCA considers that its package of proposals regarding PPI complaints (as set out in the FCA’s November 2015 consultation) should be taken forward. The proposals included setting a deadline for bringing new PPI complaints, and a communications campaign to bring the proposed cut-off deadline to consumers’ attention.  It has been suggested that the consumer communication campaign could cost up to £42 million, which is likely to be shouldered by the banks.

Before making a final decision on the package of proposals, the FCA is “consulting on changes to the proposed rules and guidance concerning the handling of PPI complaints in light of Plevin” (the Supreme Court decision in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61).

The proposed changes to the rules and guidance concerning the handling of PPI complaints were flagged by the FCA following responses received to its November 2015 consultation. They relate to three key aspects of the current rules and guidance:

  • to include profit share in the FCA’s approach to assessing fairness and redress;
  • to allow rebates received by a consumer when cancelling their PPI policy to be partly reflected in any redress due (reducing the redress); and
  • clarifying how firms should assess redress where commission or profit share rates varied during the life of the PPI policy.

Consultation on these proposed changes will close on 11 October 2016. If after that the FCA makes the final decision to proceed with the package of proposals, it has said it anticipates that:

  1. guidance concerning the PPI deadline, who is to meet the cost of the consumer communications campaign fee, and how changes to the handling of PPI complaints post-Plevin, will be published before the end of December 2016;
  2. any changes to the rules and guidance post-Plevin would come into force by the end of March 2017; and
  3. the rule setting the PPI cut-off deadline would come into force by the end of June 2017, with the consumer communication campaign starting at the same time, meaning a cut-off deadline in June 2019.

This delay could force Banks to set aside yet further funds to cover claims made during this longer than anticipated period. At least it now looks like final clarity on the matter can be expected before the end of 2016.

The future of market rigging investigations?

Forex hit the headlines once again in late July, after the arrest of HSBC global head of forex cash trading (Mark Johnson) at JFK airport in New York.   The US Department of Justice alleges that Mr Johnson (and Stuart Scott, who was HSBC’s head of forex cash trading for Europe, the Middle East and Africa until 2014) used a technique called “ramping” when arranging for Cairn Energy to purchase $3.5 billion in sterling. This means that the bank is said to have purchased the sterling for HSBC’s owns accounts, caused the price of sterling to jump, and resold it to Cairn at higher prices.

Accusations of misconduct in FX trading are sadly nothing new. But here the Cairn trade had already been scrutinised and given the all clear. In 2013 HSBC had engaged a law firm to conduct an investigation into its currency trading, including this trade. Such internal investigations are common in the financial services sector, and the regulator often relies heavily upon their findings to supplement its own work (although the regulator will generally “test” the evidence and conclusions). In this instance no breaches of the bank’s internal code of conduct were found.

The incident raises again the question whether the reliance on internal investigations into market manipulation scandals can continue, or, whether there will be pressure on regulators to insist upon independent external investigations in the future.

Forex rigging – a recap

The issues with FX manipulation arose in part because the FX market is unregulated, and as such there are no specific rules governing it. The absence of a physical FX marketplace also lends itself to the potential for rigging. Trading takes place on electronic systems, operated by large banks – and approximately 40% of the world’s dealing goes through London.  Currency prices fluctuate based on supply and demand, and in response to economic news.

To help with valuing multi-currency assets and liabilities, daily spot FX benchmarks (known as “fixes”) are determined. Until recently, the main fixes were calculated by Reuters based upon currency trades which took place between 30 seconds before and 30 seconds after 4pm GMT.  Because the fix was based such a short period, traders were able to collaborate and place aggressive orders during the one minute window to distort the fix.   Traders also shared confidential information regarding their clients’ activities to enable fixes to be manipulated. In 2014, the FCA fined five banks a collective of £1.1 billion for their roles in G10 spot FX manipulation.  Since then the fix window has been lengthened to five minutes, making it harder to manipulate.

Changes to the conduct of investigations?

Once it began to emerge that market rigging may have taken place, the banks involved all conducted their own internal investigations. The findings of those internal investigations were passed to the FCA and other authorities.

In 2014, the FCA announced a remediation programme, which required firms to “review their systems and controls and policies and procedures in relation to their spot FX business to ensure that they are of sufficiently high standard to effectively manage the risks faced by the business”.   Senior managers were asked to confirm that such action had been taken, with the focus being on clear accountability for the specific issues which the FCA had highlighted as requiring change.  Despite the advantages of a remediation programme, this still put the emphasis on firms to ensure their own compliance and accountability, with limited external checks.

In 2015 Jamie Symington – Director in Enforcement (Wholesale, Unauthorised Business and Intelligence) at the FCA – highlighted the perceived benefits of allowing firms to conduct their own investigations: an understanding of their own business enabling them quickly to investigate, establish the facts and remediate.  But Mr Symington noted that, in circumstances where the FCA may be considering taking enforcement action, it must consider whether an internal investigation will help or hinder the FCA’s investigation.  The FCA is alive to the fact that firms will have their own interests in mind when an investigation is being conducted.

If incidents like Mr Johnson’s arrest, some three years after an internal investigation found no fault, continue to arise, there is clearly a risk that regulators will think again about the way in which investigations in the financial services sector are conducted. That may ultimately entail fully independent, external investigations, either by skilled persons appointed under section 166 of FSMA or by some other bespoke procedure. Such a move would undoubtedly make investigations more costly and cumbersome to run, and as such more of a burden for the firms under investigation. The Johnson case certainly highlights once more the need for firms asking regulators to rely on internal investigations to ensure they are conducted by genuinely independent external professionals in a robust manner that will withstand scrutiny. Otherwise firms face the risk that scrutiny may be brought to bear in the US courts.

Financial Disputes Roundtable: “Get me my money back!” Tracing the Proceeds of Fraud and Cybercrime

For the next in our breakfast roundtable series, Laurence Winston and I will be joined by intelligence and investigations specialists James Stothard and Damian Ozenbrook of Blue Square Global to look at tracing and recovering stolen assets. Following on from our well-received recent roundtable session on how to react to a cyber-theft or fraud, we are looking forward to another lively Chatham House Rules discussion of a range of issues including:

  • Effective use of investigators and other asset tracing techniques
  • The investigator’s perspective
  • Looking behind complex trust structures and tracing ultimate owners
  • Following the money across jurisdictions
  • Enforcement tactics in the UK, EU and beyond

The roundtable will be taking place on 20 September 2016, with registration and breakfast from 8:15 and the discussion getting underway from 8:45. If you would like to join us please register here: places are limited.

Upper Tribunal refuses to stay regulatory proceedings pending a criminal trial

Background

The Upper Tribunal (Tax and Chancery Chamber) hears references from decisions and supervisory notices issued by the Financial Conduct Authority (“FCA”) and other specified regulators. In this case three references were made by two former employees of Deutsche Bank (Messrs Bittar and Vogt) and a former Barclays Bank employee (Mr Moryoussef).

The references related to their third party rights under section 393 of the Financial Services and Markets Act 2000 (“FSMA”).  In essence, section 393 of FSMA provides that if an FCA notice identifies someone other than the person to whom the notice is given and is prejudicial to that person, a copy of the notice must be given to that person.  The references were made because the individuals in question had not been provided with copies of the FCA decision notices against their employers regarding LIBOR/EURIBOR manipulation.

There was some dispute about whether the individuals were identifiable in the notices. In November 2015 the Upper Tribunal had found that Mr Bittar was identifiable in the decision notice against Deutsche Bank.   In March 2016 it found that Mr Vogt was not identifiable. Mr Vogt is seeking permission to appeal this decision: his application has been stayed pending the Supreme Court’s judgment in Macris v Financial Conduct Authority [2015] EWCA Civ 490.

Mr Bittar, Mr Moryoussef and others have also been charged by the Serious Fraud Office with conspiracy to defraud in relation to EURIBOR manipulation.  The facts of the criminal proceedings overlap with the references to the Upper Tribunal.

FCA’s Applications

The FCA applied to stay Mr Bittar’s reference until the Macris judgment is released (the Supreme Court hearing is expected in October 2016) and the criminal proceedings have been concluded. The FCA also applied for Mr Bittar’s and Mr Moryoussef’s references to be consolidated, arguing that this would further the overriding objective.

Mr Moryoussef, Deutsche Bank and the SFO all supported the FCA’s application to stay the References.  Mr Moryoussef argued that he wanted to use his limited resources to defend himself in the criminal proceedings in priority to pursuing his reference and await the Supreme Court decision in Macris. He also shared the SFO’s concerns about whether the criminal trials would be fair if the regulatory proceedings had already been decided.

The SFO’s concerns regarding fairness were:

  • the risk of prejudice through publicity which might flow from any finding on dishonesty ahead of the criminal trial;
  • inconsistency between the Upper Tribunal and the criminal court; and
  • the risk of parties seeking to identify inconsistencies between the evidence during the regulatory proceedings and the approach of the prosecution in the criminal proceedings.

Mr Bittar opposed a stay, arguing that regulatory proceedings have an important public function and it was not appropriate to stay them simply because there are parallel criminal proceedings.

Decision

Timothy Herrington (the Upper Tribunal Judge) said “there is a strong presumption against a stay and it is a power which has to be exercised with great care and only where there is a real risk of serious prejudice which may lead to injustice“.  In his view, the only concern raised by the SFO could meet this test was the risk of publicity from a dishonesty finding ahead of the criminal trial.   This would be less of an issue if there was a significant time gap between the end of civil proceedings and the start of a criminal trial.

The risk of inconsistent decisions had previously been discounted by the Courts in R v Panel on Takeovers and Mergers, ex parte Fayed and others [1992] BCC 524.  In addition, the Upper Tribunal could put safeguards in place by restricting the use of material from its proceedings and/or not publicising its decision until after the criminal trial – Mr Herrington referred to Bankas Snoras v Antonov and another [2013] EWCA 131.

To further the overriding objective, the Upper Tribunal had to avoid delay, whilst balancing the competing interests of the parties.  It was unusual for the subject of criminal proceedings not to wish to stay parallel civil proceedings.  But in Mr Bittar’s case the risk of injustice could be addressed through case management.   The timing needed to be kept under review to ensure that the civil proceedings are not heard shortly before the criminal trial, leaving publicity fresh in the minds of the jury and/or witnesses.

Mr Moryoussef satisfied the Upper Tribunal that it was appropriate for his reference to remain stayed until the Supreme Court’s judgment in Macris, and to allow him to focus his resources on the criminal proceedings.  So it was decided that the question of consolidating the references would be revisited if the court decided to lift the stay on Mr Moryoussef’s reference.

The decision was published on 6 June 2016.

High Court backs bank on whether hedging is gambling

Derivatives can be used to hedge, speculate, or a hybrid of the two. An astute gambler may claim his strategy is like a “naked” derivative: a calculated attempt to profit from a mismatch between the odds and the chances of the bet paying out.   But is a buyer using derivatives doing the same thing as a gambler?  This question was revisited in WW Property Investments Limited v National Westminster Bank plc [2016] EWHC 378 (QB).

The background

Between 2004 and 2010, WW borrowed money from the bank on a floating interest rate.  To hedge those interest obligations, WW entered into three interest rate “collars” with the bank and later a swap. The collars and the swap turned out to be disadvantageous to WW. They were reviewed as part of the Interest Rate Hedging Product Review undertaken by the bank by agreement with the FCA. The review resulted in WW and the bank entering into a compromise agreement in respect of claims relating to the collars, although WW reserved a right to claim for additional losses under the review. No compromise was reached in relation to the swap. WW later sued for losses under the swap.

WW’s hand

Among other things, WW claimed that the collars and the swap were unlawful wagers. Counsel for WW played the following cards:

  1. interest rate hedges amount to “contracts for differences”, which are wagers at common law;
  2. wagers contain implied terms that the chances are equal and the parties possess equal knowledge about the odds;
  3. the collars and the swap were subject to these implied terms as they were not betting contracts regulated by the Gambling Act 2005;
  4. the collars and the swap each had a market value at day one in favour of the bank that the bank failed to disclose; and
  5. the bank was therefore liable to WW for breach of the implied terms.

His Honour Judge Roger Kaye QC, sitting in the High Court, did not consider the collars, holding that all claims relating to these had been compromised in the earlier settlement. He considered the arguments on the swap.

Betting against the odds

The judge had an advantage: the exact same hand had been played several times before. Notably it had been played by the same counsel on six occasions in two recent cases. Each time it was rejected.

In Nextia Properties Ltd v Royal Bank of Scotland and another [2013] EWHC 3167 (QB), it had been rejected summarily by the High Court, and then permission to appeal had been refused on three occasions: first, by Lord Justice Christopher Clarke on paper; second, by Lord Justice Vos sitting in the Court of Appeal ([2014] EWCA 740); and third, by Lord Justice Vos again following a renewed application for permission to appeal. It also failed in Derek Gladwin Ltd v Barclays Bank plc (2015, unreported) in both the High Court and (at the permission stage) in the Court of Appeal.

The judge criticised WW’s counsel for re-heating similar arguments, calling this “pointless, expensive, and wasteful litigation to the detriment of the courts time and resources and needs of other litigants”.

The judge followed the Nextia and Gladwin decisions and affirmed the decision in Morgan Grenfell v Welwyn [1995] 1 All ER 1 that a contract for differences could not be a wager if the “purpose and interest of [the parties] was something other than wagering” (i.e. if at least one party had a genuine commercial purpose). In the judge’s opinion, WW had entered into the swap to limit its interest rate risk on its loans as part of a genuine hedging strategy. The bank was under no obligation to ensure equal chance, or to disclose the day one “market value” of the contracts.

The judge also approved of Lord Justice Vos’s view in Nextia that the Gambling Act 2005 had replaced the common law on wagers entirely, such that contracts regulated under the Financial Services and Markets Act 2000 were now beyond the ambit of gambling law.

Tipster

There is a history of buyers of derivative contracts arguing that they are unenforceable as either wagers or insurance agreements that did not comply with the respective legal rules. It is notable that the latest round of such attacks since the financial crisis has again been rebuffed by the courts.

That said, the judgments in Nextia, Gladwin, and WW Properties are brief, as they were in response to strike out, summary judgment and permission to appeal applications rather than full trials. They also did not have the most promising fact pattern for an attack on derivatives as wagers. Maybe another litigant will gamble on playing a better hand more successfully in the future.

Closing out derivative contracts following Brexit

Since the shock Brexit vote on 23 June there have been big movements in a number of financial markets, as participants of all types reposition themselves for the period of uncertainty that the leave vote has ushered in. Regardless of the eventual terms of a UK exit from the EU, market movements that have already happened can be expected to cause defaults under derivative contracts linked to the affected markets, such as FX and equity index derivatives. For example we can expect:

  • Margin calls made on out of the money counterparties not being met.
  • Events of default or potential events of default arising, for example, from ratings downgrades on sovereigns, financial institutions or corporates.
  • Repudiation of loss-making contracts by counterparties claiming not to be bound to honour their terms.

In a client alert published today on the Squire Patton Boggs website (here), we have set out our guidance for handling these defaults, drawn from our experience of dealing with the wave of defaults that followed the 2008 financial crisis.

Class X Noteholders granted permission to appeal inconsistent judgments

As previously reported on this blog, April saw two important judgments in the Titan and Windermere Class X cases. Those decisions have implications for both “CMBS 1.0” structures that include Class X notes in them, and for the wider financial markets in terms of how the courts are approaching disputes over the interpretation of finance agreements.

As our previous blog posts predicted, the significance and inconsistency of the Class X judgments made them ripe for challenge. Now the Court of Appeal has given the Titan Class X noteholder permission to appeal, with a hearing due to take place in Q4, 2016. In doing so the Court of Appeal hinted it is concerned with the approach taken by Sir Terence Etherton in the Titan judgment, which contrasts with the Windermere decision in taking much more interest in the commercial consequences of the Class X noteholder’s arguments than the words used in the agreements. As the Court of Appeal judge put it:

“…it seems to me that the Chancellor arguably gave too much weight to what he regarded as the commerciality of the respondents’ construction of the definition [of Net Mortgage Rate] in allowing it to displace the more obvious meaning of the words used. It is not easy to see why in a carefully worded commercial contract the draftsman did not expressly exclude default interest if the words “interest rate” were not intended to include what the Chancellor accepted was “interest”.

This criticism is not surprising, given the direction of travel of the courts in interpreting commercial contracts generally, following last year’s Supreme Court decision in Arnold v Britton, towards a more literal reading of the words of contracts rather than a focus on their commercial intent. As I noted in my round up of the cases in May, it was concerning to see a lack of consistency in the approach of two eminent Financial List judges in two very similar cases heard weeks apart. It now looks like the Court of Appeal may act to resolve the uncertainty in favour of the more literal approach taken by Mr Justice Snowden in the Windermere case.

It is also notable that the Titan appeal has been listed early, and some time before the scheduled appeal hearing of the Windermere appeal in March 2017. That may be seen as the courts taking prompt action to enhance confidence in their approach sooner rather than later, as the Financial List looks to gain traction in its first year of operation.

Shift towards a PPI cut off deadline reported

In October 2015, the Financial Conduct Authority published a statement confirming its intention to consult on the introduction of a deadline by which Payment Protection Insurance (“PPI“) mis-selling claims must be brought, accompanied by a consumer communication campaign.  Comments on the FCA’s proposals were invited before 26 February 2016.

The FCA has not as yet officially announced whether a PPI deadline is to be implemented.  However, The Times reported last week that internal FCA documents have revealed that the FCA is backing a call by the banks for an introduction of a two year cut-off.

In April 2016 alone, £405.8 million was paid out to customers who complained about the sale of a PPI policy to them.  Since 2011, a total of £24.2 billion has been paid out to consumers.  In light of these figures, and given the length of time that has now passed since PPI “mis-selling” claims began, it is hardly surprising that the banks would like to see the conclusion of this tranche of claims in the near future.  Should a deadline be implemented, banks would likely be expected to write to customers directly regarding any possible PPI compensation claim, to enable the customer to take action ahead of the deadline, should they wish to do so.

As discussed in our blog, Government increases the regulation of Claims Management Companies” (21 March 2016) there were some 1,752 operative claims management companies (“CMCs“) in 2015, which have played a part in driving the wave of PPI mis-selling claims against banks.  The CMCs argue that a PPI deadline would deny consumers access to justice, and The Times reported that the CMCs had “threatened to bring a judicial review against the FCA” if a deadline was introduced.

HM Treasury is reported to agree that the time has come for an end to PPI claims.

An official FCA announcement is awaited and should bring clarity for both banks and consumers.

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