Update: consumer

PPI complaints

The most significant development in consumer credit litigation is not the introduction of new legislation or (as yet) the decision of a court. Rather it is the launch by the British Bankers Association (BBA) of a judicial review against the Financial Services Authority (FSA) and the Financial Ombudsman Service (FOS) in relation to the handling of payment protection insurance complaints.

The action was commenced in October and seeks to challenge new guidance issued by the FSA in August as well as longer standing guidance of the FOS dating back to November 2008. The BBA is seeking to argue that both respondents are, when examining historic selling, applying standards that were not in effect at that time. The FSA and FOS have both indicated that they intend to fully defend the action.

Those involved with consumer credit litigation will remember the litigation around default bank charges that saw tens of thousands of claims held in limbo pending the outcome of the litigation. Ultimately those claims were then swept away when the Supreme Court handed down a judgment in favour of the banks.

There are, therefore, several questions that arise before the parties even get into court. Most importantly, what will be the effect for ongoing complaints and how will a victory by the BBA affect PPI claims in the future?

In 2008 the FOS wrote to the FSA indicating that it believed many firms were not handling PPI complaints they received properly. This prompted a process of consultation by the FSA which included the BBA among others. On the 10 August 2010 the FSA issued new guidance with the reference PS10/12.

The FSA stated the guidance will lead to complaints being handled more fairly and will deliver fairer outcomes to consumers who have been missold PPI whether or not they have made a complaint.

The BBA took issue with the FSA's actions on the basis they require firms to assess complaints by reference to standards as now defined, not those that were in force at the time a PPI policy was sold. Firms will also be required to conduct a root cause analysis of complaints to look for systemic failure. If systemic failure is found, a firm should find in favour of complainants in all matters. Furthermore they should seek out those customers who have also experienced misselling with a view to refund, whether or not a complaint has been made.

The complaint against the FOS guidance from November 2008 is similar in that it allegedly seeks to impose higher standards on firms retrospectively. The BBA highlighted the fact that between 2005 and early 2008 the FOS apparently upheld around 20-30 per cent of complaints of PPI misselling. Since that time around 80-90 per cent of such complaints have been upheld. It was of course in late 2007 and early 2008 that there was a great deal of adverse publicity about the general practice surrounding PPI misselling.

The BBA says there is the potential under the new FSA and existing FOS guidance for a liability to compensate to be created where none would exist under strict legal principles. The FSA justifies the tenor of the new guidance on the basis of widespread and common failings in PPI misselling. It is also suggested that the new guidance does accurately reflect the standards at the time of the PPI policies being sold that are now the subject of complaints.

Where does that leave the unhappy consumer? The FSA has stated that banks should continue to deal with complaints while the judicial review is pending. The BBA has stated that their members intend to do so but they will distinguish between those complaints that will be affected by the outcome of the judicial review and those that will not.

In simple terms, if a complaint would have been upheld under the pre-existing rules then it would still be dealt with by the financial institution. However, on the basis that the FOS guidance is subject to challenge, it appears that means the pre-2008 position. An example of a difference is that the particular facts of complaints will be more significant '“ if a particular issue is not raised by a complainant then the financial institution will not deal with a complaint by reference to such failings identified in other cases.

There will be no general moratorium as was seen in the bank charges litigation. The danger is that the parties will have to argue on a case-by-case basis whether a complaint is affected by the judicial review. That is hardly satisfactory and the sooner the judicial review is dealt with the better.

What if the BBA succeeds? It will not be a repeat of the default bank charges decision in that this is not an 'all or nothing' situation. The BBA does not contend that everything was fine with PPI selling, what they say is that the failings were not as widespread or systemic as the FSA and FOS suggest. Doubtless they will hope for a return to the 20-30 per cent level of complaints that were upheld pre-2008.

However, a successful judicial review will only send the FSA and FOS back to the drawing board and further guidance will be issued. Both bodies appear to be driven by a desire to be seen to tackle a widespread abuse. They are likely to do what they can to achieve a similar result by alternative means.

But all of this activity in the Administrative Court should have next to no effect on any litigation which is ongoing between consumers and financial institutions. The review concerns the regulatory functions of the FSA and the FOS, not a definition of the legal relationship of the contracting parties. However, with PPI complaints to the FOS running at about 50,000 per annum, the outcome of the judicial review will be keenly awaited.

Cancellation of contracts

Not for the first time credit hire arising out of road traffic accident (RTA) litigation has given rise to consideration of wider consumer credit issues. On appeal from a district judge, Cambridge County Court gave consideration to the Cancellation of Contracts Made in a Consumer's Home or Place of Work etc Regulations 2008 in the case of Wei v Cambridge Power and Light Ltd (10 September 2010).

The claimant was an innocent party in a road accident and was put in touch with Accident Exchange for a replacement vehicle. The vehicle was provided on typical credit hire terms which led to a total cost of £4,487. The claimant subsequently sought to recover damages including the cost of the replacement vehicle from the defendants.

The 2008 regulations provide under 7(6) that where they apply a contract is not enforceable if a notice of cancellation has not been given to the consumer in the form and manner prescribed in the regulations. As you would expect from the title, the regulations apply to a contract for the supply of goods or services to a consumer by a trader during a visit to the consumer's home or place of work. It was common ground that no notice of cancellation had been provided.

There were four issues in the appeal which Accident Exchange understandably supported:

1. Could the court look into the enforceability of a consumer contract when the 'trader', Accident Exchange, was not a party to the proceedings?

2. Where was the contract made '“ was it made at the consumer's home when the hire vehicle was delivered or was it made earlier in a telephone conversation?

3. If the regulations did apply had Mr Wei affirmed the contract by his actions, namely using the vehicle for a period of time and also asserting the agreement's validity in the court proceedings?

4. If the agreement was unenforceable could Mr Wei still claim the cost of hire from the third party in the RTA litigation?

The court found on the first issue that as the points had been fully argued in the litigation it could and would look into the validity of the contract. The second and third issues are more significant as far as consumer credit is concerned.

The judge found that it was a matter of fact and law as to whether at the point he signed the agreement when the car was delivered a contract had already been concluded. There was a degree to which Mr Wei was entitled to see (and potentially reject) the full terms and conditions which had not been discussed in the telephone conversation. Perhaps critically, the written agreement purported to revoke any pre-existing agreement between the parties. Therefore the regulations applied.

The court was not attracted by arguments of subsequent affirmation by the claimant's actions. The potential of the regulations to render agreements void for non-service of a cancellation notice was designed to be punitive. In addition, the judge concluded that if a consumer could make a bad contract good by their actions it had the potential to render the regulations meaningless. Few consumers would discover the breach of the regulations until it was too late.

On the final point, the judge followed Dimond v Lovell in that, as the agreement was unenforceable as between Mr Wei and Accident Exchange, it was not recoverable from the defendant.

Although only an appeal to the county court, the consideration of the point at which the contract is concluded and the inability to override the requirements to serve a cancellation notice under the regulations is helpful.

Knocked for six

Finally, when is a '1930s Speed Six Bentley' not a 1930s Speed Six Bentley? Apparently it is when only part of the front section of the car's chassis and its attached chassis number were the only surviving parts from the original vehicle. This was the finding in the case of Mercedes Travis Brewer v Stanley Mann & Ors [2010] EWHC 2444. The car was purchased for £425,000 by means of three contracts between Mr Mann, his company Stanley Mann Racing and a finance company.

In a lengthy 100-page judgment the High Court upheld a complaint by Mrs Mercedes Brewer, a car enthusiast, that there had been a breach of section 9(1) of the Supply of Goods (Implied Terms) Act 1973 when it transpired that the engine was not a Speed Six engine but a reconditioned 1927 Bentley engine. Ultimately the claimant succeeded against all three defendants.

It is not the first time a Speed Six Bentley has featured in a court case. Apparently, in 1930 Bentley chairman Woolf Barnato made a bet of £100 that he could drive a Speed Six from the Carlton Hotel, Cannes, to his London club before the Cannes Le Train Bleu could reach Calais. He won by four minutes. Victory was at a cost though as he was fined by the French authorities for racing on public roads.