When is it too late to bring a PPI claim?

Smith & Anor v Royal Bank of Scotland PLC

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Summary of outcome:

• Unfairness in a relationship is a fluctuating concept that can change over the course of a relationship.
• The general rule is that you have six years from the end of the relationship to bring a claim.
• Here, because the only unfairness related to PPI, which had ended some time ago, the deadline was sooner.

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Context:

The Court of Appeal has handed down judgment in favour of a lender in a case regarding the time limits for bringing a payment protection insurance (PPI) claim.  

How will this impact the huge number of PPI claims currently going through the Courts?

Between 1990 and 2010, approximately 64 million PPI policies were sold to UK consumers in connection with credit cards, mortgages and loans. These policies were designed to cover repayments if the consumer could not pay them for reasons such as unemployment or ill health.

The deadline for making a PPI claim by way of the Financial Ombudsman was in August 2019. However, it is still possible to bring a compensation claim under section 140A of the Consumer Credit Act 1974 if the lender was paid a high level of commission for the sale of PPI and did not disclose that to the consumer (often referred to as a Plevin claim, after the leading Supreme Court case of Plevin v Paragon Personal Finance Limited).

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The case:

This was the basis of the claim in Smith & Anor v Royal Bank of Scotland PLC Ms Smith had taken out PPI on getting an RBS credit card in 2000. The PPI was added to her credit card balance every month, with interest being added to the sums due if not paid in full each month. Unknown to Ms Smith, RBS was receiving commission payments of over 50% with regard to her policy premiums.

The Court of Appeal had to consider whether Ms Smith’s claim was time-barred. She had terminated the PPI policy in 2006 with the last PPI-related payment made in April 2006, but the credit card agreement carried on until it was finally ended in 2015. RBS contended that the clock on the six-year time limit for making a claim began on the date of the final PPI-related payment; Ms Smith’s case argued that the clock started at the end of the credit card agreement itself, sometime in 2015.

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The outcome:

The Court of Appeal decided unanimously in favour of RBS. It determined that the only unfairness in the credit relationship between the parties was the undisclosed commission paid to RBS; there was nothing unfair about the credit card agreement itself. Therefore, the agreement ceased to be unfair once the final PPI policy premium was paid in April 2006. Limitation was deemed to have started to run in 2006 so Ms Smith’s final opportunity for making a claim was in 2012, six years on from the date of that last payment.

The Court of Appeal said: “There is nothing [in the Consumer Credit Act 1974] which somehow means that once a credit relationship was unfair for some reason, that unfairness always and necessarily has to persist for all time, as long as the credit agreement persists, as a matter of law and irrespective of the facts”.

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Summary:

The key takeaway here is that the question of whether a credit relationship is unfair, is a question of fact which can change over time, i.e. just because a relationship was unfair at one point, it does not mean that it will always be unfair.   

A further point of appeal raised by RBS was that Ms Smith could not claim for an unfair relationship because the PPI element had ended before the unfair relationship provisions took effect. However, the Court rejected this on the grounds that the wider credit relationship between Ms Smith and RBS did not cease until 2019, long after the unfair relationship provisions had taken effect.

This decision will, of course, be welcomed by lenders who offer credit cards, or other forms of loans where the PPI element does not last for the duration of an agreement. We will likely see an increased number of claims being found to be time-barred.