Payment Protection Insurance (PPI)1
09/05/11

Why the BBA brought a judicial review

What is PPI?

PPI is an insurance product which covers the risk of a borrower being unable to repay their borrowing.

It typically covers accident, sickness, unemployment and death, but the detailed terms and conditions of different policies will vary. It is usually paid for either as a single up front premium (usually added to the amount of the underlying loan provided) or by separate monthly instalments.

Until recently, banks offered to arrange PPI for customers alongside their credit applications.

What was the case about?

The BBA has asked for a judicial review of the FSA policy statement on PPI complaints and guidance published by the Financial Ombudsman Service.

This judicial review is about the ability of the Financial Services Authority (FSA) and Financial Ombudsman Service (FOS) to apply new standards to old sales; it is not simply about PPI.

The FSA's policy statement and open letter to the industry advised that banks should consider complaints about PPI in two ways. First, by reference to the detailed conduct of business rules which applied at the time the sale was made. And second, according to standards that are based on the FSA’s guiding principles for doing business. The BBA has applied to the Courts for a judicial review of (i) the FSA’s approach contained in its policy statement, and (ii) the Financial Ombudsman Service’s approach to PPI sales complaints contained in its guidance.

Whilst the UK banking industry has to date implemented every reform on PPI sales and complaints handling required by the regulators, we believe (and continue to believe) that the FSA is effectively creating a precedent which permits it to apply new rules to previous sales – even where those sales were regulated by other FSA rules.

Therefore this ruling might not only affect customers who have bought PPI, but might also set a precedent that could affect all products regulated by the FSA.

The judicial review was heard in the High Court during the week of Monday 24th January 2011.

The judgement was handed down on 20 April 2011 and found in favour of FSA and the FOS. The BBA was given until 10 May 2011 to appeal.

In the interest of providing certainty for their customers, the banks and the BBA decided that they did not intend to appeal.

How do I make a mis-selling complaint?

If customers feel they have grounds for complaint they should contact their bank directly. There is no need to use a complaints management company.

What will the BBA do next?

We continue to believe that there are matters of important principle which we will be taking forward in other ways with the authorities.

British Bankers’ Association
Monday 9 May 2011