The recent Supreme Court decision in Plevin v Paragon Personal Finance Limited  gave some guidance on how the concept of unfair relationships can be relevant to mis-selling in relation to payment protection insurance claims. The case concerned the application and interpretation of section 140A of the Consumer Credit Act 1974 which allows the court to reopen an unfair credit agreement.
Background in Plevin v Paragon Personal Finance Limited 
The claimant bought payment protection insurance (PPI) through an independent credit broker with the defendant, Paragon Personal Finance Limited to cover a loan. The PPI premium of £5,780 was payable at the outset and added to the amount borrowed. The claimant, Mrs Plevin, was not made aware that both the broker and the lender were paid commissions amounting to nearly 72% of the PPI premium.
The main issue to be determined by the Supreme Court was whether an unfair relationship existed between Mrs Plevin and Paragon pursuant to sections 140A of the Consumer Credit Act 1974. This section introduces a broad test of fairness which allows the court to exercise its discretionary powers.
Mrs Plevin claimed that the unfairness stemmed from two key points: i) the non-disclosure of the high commissions and ii) the failure of the broker to assess the suitability of the PPI for her needs. It was argued that the acts or omissions of the broker were done on behalf of Paragon and so Paragon was caught by s140(A).
The decision in Plevin v Paragon Personal Finance Limited 
In relation to the non-disclosure of the commission, the Court noted that pursuant to the Insurance Conduct of Business Rules (ICOB), the existence of or amount of commission is not required to be disclosed. The Court considered that the rules provided for ‘a minimum standard of conduct’ but stated that the relationship between a debtor and their creditor could still be unfair even if there was no breach of either these rules or other statutory provisions.
In this case, the size of the hidden commission payments meant that the relationship was in fact unfair. The Court recognised that it is difficult to say where the ‘tipping point’ lies, but found that 71.8% was ‘a long way beyond it’. The claimant’s evidence drew attention to the assertion that had Mrs Plevin been made aware of the extent of the commission, she would have questioned whether the PPI represented good value for money. This unfairness was the responsibility of Paragon, the only party which knew the size of both commissions.
On a more positive note for lenders, the Court made clear that the broker’s failure to conduct a needs assessment of Mrs Plevin could not be treated as something done ‘by or on behalf of’ Paragon because the broker was not acting as Paragon's agent. Therefore, the Supreme Court opted to give a narrow interpretation to the term ‘on behalf of’, as being agency relationships.
It is likely that the outcome of this decision may result in an increase in litigation, as borrowers will now be able to argue that a credit relationship is unfair even in circumstances where lenders complied with their regulatory duties. However, although non-disclosure of commission does have the potential to make the relationship unfair, each case is fact sensitive. For specialist advice in relation to PPI claims contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.