Consumer update

As most of us now know, banks, building societies and card companies have had to put aside some £22bn as at February 2014 to cover the costs of compensation claims arising from mis-sold payment protection insurance. Anyone who has had a loan, credit or store card in recent years needs to have a working knowledge of how to claim compensation in case they have been affected.

While there is often no need to litigate over this issue, cases do arise and this gives us the opportunity to publicly shed light on the actual evidence of the mis-selling. Even better, the Court of Appeal has handed down its judgment in Figurasin and Anr v Central Capital Ltd and Paragon Personal Finance Ltd [2014] EWCA Civ 504 (Civ) giving consumers authoritative, unanimous guidance on what to look for.

The main judgement was handed down by Laws LJ with simple, concurring judgments being given by Patten LJ and Vos LJ on 16 April 2014. It was
an appeal by the first defendant against the trial judgment that it had to pay £13,000 damages to Mr and Mrs Figurasin (including interest) for mis-selling them PPI for a £25,000 loan in 2005.

The Figurasins both worked in modestly paid NHS jobs and needed to consolidate their existing debts. They were offered a £25,000 loan repayable over ten years at the rate of £291.61 per month during a sales telephone conversation.

During this call, they were persuaded to take
out PPI to protect them against the risk of being unable to maintain their repayments in the event of job loss. This was actually at an additional cost of £8,750, also repayable over ten years at an extra £102.70 per month. The issue was whether the Figurasins were on notice of this and the evidence shows a classic contest between contract and consumer protection.

Misleading statements

The judge at first instance found that the first defendant’s salesperson had misled the Figurasins by not making it clear that the PPI premium was being paid in advance by an extra loan of £8,750. She did not ask if they wanted to pay up front; the defendants had made that decision for them knowing that they were financially constrained.

Accordingly, this amounted to a breach of the Insurance: Conduct of Business rules 2.2.3R and 2.2.5G. Under the Financial Services and Markets Act 2000, section 150 (1), contravening these rules is actionable in damages. The first defendant appealed on the basis that the trial judge had misdirected himself in applying the evidence
to this test.

The advice given by the first defendant to the claimants was provided during an initial telephone conversation (during which the quotes were generated) followed up by a detailed information pack sent out to them. The contractual agreement was made when they signed the forms, which were then sent back to the first defendant. The appeal really turned on whether this was a single process or two distinct steps.

The transcript of the telephone call showed gaps in the scope of the advice given by the salesperson but the customer information pack was far more comprehensive and made the true cost clear. As ICOB 2.2.3R requires that all communications with customers must be clear, compliance required the court to find that there was one single communication for the appeal to succeed.

Interpreting evidence

The Figurasins had not read the information pack and had no idea that it clearly set out the exact repayment obligations. In contrast, the Figurasins believed that they were getting ‘something for nothing’ as they were only borrowing £25,000,
so they presumed the £8,750 PPI premium was included in that amount. Had they known the true amount being borrowed was £33,750, they would not have taken out the loan.

The previous decision of Goodman v Central Capital Ltd [2012] EWHC 8 (QB) was relied on by the first defendant to show that a contractual interpretation was the correct approach. The Figurasins admitted failing to read the written documentation ought to prove fatal. The Court of Appeal confirmed that there is considerable merit in requiring customers to read contracts before signing them.

Nevertheless, they distinguished Goodman because the salesperson had not explained to
the Figurasins that the PPI premium was a separate and additional cost despite having had ample opportunity to do so.

Accordingly, an opportunity had arisen for a financially naïve customer to misunderstand what was involved and this could not be remedied
by saying that they should read through voluminous paperwork.

The purpose of the ICOB rules is to protect consumers from being misled. Accordingly, the Court of Appeal reaffirmed the need for consumer protection to trump a stricter laissez-faire interpretation of the evidence based on contract. That said, the evidence needs to be there in the first place for the court to be able to do this; Goodman still shows that this will not always
be the case.

Figurasin provides practitioners with an excellent example of what to look for when advising on this issue. In fact, their lordships agreed there was strong evidence that the communication of the key financial information was unclear and therefore misleading.

Telephone transcript

It was the transcript of the recorded telephone conversation that provided the key evidence of what was actually said to the Figurasins. The trial judge was able to find that the true cost of the loan had not been highlighted to the Figurasins and that the extra cost was to their detriment. Accordingly, the first defendant’s system itself was calculated to mislead its customers.

This system consisted of a telephone sales conversation; a confirmatory covering letter; and a detailed client-care pack. Both the salesperson and the covering letter failed to state that the PPI premium was payable in addition to the main loan amount. The extra amount (£8,750 plus interest over the ten-year repayment period) was almost half the £25,000 loan. This made it easy for the Court of Appeal to agree that the trial judge was entitled to find that this was misleading.

Although the PPI loan figure could, with the benefit of hindsight in the cold analysis of the Court of Appeal, be seen as belatedly mentioned as a separate amount during the initial telephone sales conversation, this was insufficient. In the context of the conversation itself as part of the sales process, it was unclear.

Consumers are not usually conversant with how the insurance system works and the Figurasins were no different. Consumer protection requires that they have all significant additional costs explained to them even at the risk of the insurer losing business. Consumer protection means what it says.

At least as far as PPI mis-selling claims go, the
old contractual maxim ‘let the buyer beware’ cannot be relied on. However, this is generally true of consumer protection legislation as a whole.

Practitioners who advise their clients to fund their cases by way of a particular after-the-event policy should be aware of the risk that without clear advice of policy’s costs may leave them open to criticism (and reduced costs recovery) at the end.

Geoffrey Simpson-Scott is an associate at Colemans CTTS Solicitors