This article was originally published on Motor Finance in January 2016.

PPI claims continue to linger around the industry and whilst we await the Financial Conduct Authority's (FCA) next move, there has been another important decision.

In Brookman v Welcome Finance Services Limited, the Brookmans were sub-prime borrowers who entered into three sequential regulated consumer credit agreements with Welcome Finance Services Limited (WF). Each agreement consolidated the previous one. The Brookmans took out PPI in relation to the first two agreements. WF received 45% of the premiums as upfront commission and a further profit share comprising 44.25% of all premiums for the policies it arranged with the insurer. These payments were not disclosed to the Brookmans. They brought claims of, among other things, unfair relationship pursuant to s140A-C of the Consumer Credit Act 1974 (CCA).

The County Court, applying the Supreme Court decision in Plevin v Paragon Personal Finance Ltd, and considering the three categories of cause of unfairness in S140A(1) CCA held that:

  • The terms of the agreement - were not intrinsically unfair, despite the PPI premiums being expensive. The Brookmans knew of, and were content with, the amounts of the premiums and monthly payments. Although the price did not make the relationship unfair, it could still be relevant to the issue of unfairness under s140A(2) CCA.
  • The way in which the creditor exercised or enforced its rights - although rolling over large parts of the capital payments for both PPI policies and interest thereon into each consolidated agreement was onerous to the Brookmans, again that did not in itself give rise to an unfair relationship. It could however be relevant under s140A(2) CCA.
  • Other things done or not done by the creditor - WF's failure to disclose the fact and amount of commission did cause the relationship between the parties to be unfair as it lead to inequality of knowledge and understanding of the parties, was clearly relevant to the value of the policies and the wisdom of buying them. The failure to disclose prevented the Brookmans from making a properly informed decision.

The court further held, as had Plevin, that it was not necessary or appropriate to identify a threshold beyond which the amount of commission is such that non-disclosure automatically occasions unfairness. The question in each case is not whether the amount of commission has exceeded some general limit beyond which non-disclosure constitutes unfairness as a matter of law. Rather, it is whether on the facts of the particular case, and having regard to all relevant matters, the relationship between the parties is unfair.

Exercising its discretion under s140B CCA, the court awarded the Brookmans a refund of all payments and the remission of all subsisting liability over and above £1,500, being the approximate cost of a pay-as-you-go policy.

Comment

Appropriate redress in such cases will be fact specific. In Plevin, it was the full amount of the premium plus interest. The FCA in its October 2015 Statement on PPI proposed rules and guidance such that failure to disclose commission of 50% or more would give rise to an unfair relationship and that the redress should be the difference between 50% of the premium and the sum actually paid plus interest. The court chose not to follow either route on this occasion.