Judge rules FSA was right to add principles to rules
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The British Bankers’ Association has lost its judicial review against the FSA and the Financial Ombudsman Service over redress measures for consumers who have been sold payment protection insurance.
The cost of paying redress to consumers who have been missold PPI is estimated to be between £3bn and £5bn.
The BBA has until May 10 to decide whether it is going to appeal against the judgment, which was given last week.
The BBA launched the legal challenge against the FSA and the FOS at the Royal Courts of Justice in London in October.
It followed a policy statement published by the FSA in August outlining a package of measures to protect consumers buying PPI.
The measures included guidance to ensure complaints are handled properly, an explanation of when firms should analyse past complaints and an open letter setting out common sales failings.
Firms were supposed to implement the measures by December 1.
The BBA says: “We are disappointed with today’s judgment and now need to consider the details of it very carefully as well as next steps, including whether it would be appropriate to apply for permission to appeal.”
The FSA has taken action against 24 firms for failings in relation to PPI sales, with fines totalling nearly £13m.
The biggest fine was imposed on Alliance & Leicester, now part of Santander. It was fined £7m in October 2008 for serious failings in its telephone PPI sales.
The regulator says: “We believe this decision signals the end of years of poor complaint-handling and will trigger a dramatic improvement in the way customers are treated when complaining.”
The FOS says since the BBA launched its legal challenge in October, the ombudsman has received up to 5,000 PPI cases a week.
Figures published by the FOS in February revealed that half of all the complaints referred to the FOS in the last three months of 2010 related to PPI.
FOS chief executive and chief ombudsman Natalie Ceeney says: “This judgment is very clear cut and it confirms that the ombudsman’s approach to PPI complaints is right. People have been waiting a long time while the banks’ legal action has been ongoing.
“I would now like to see financial businesses showing real commitment to sorting out their customers’ complaints efficiently and promptly.”
The hearing at the High Court took place in January. The BBA argued that the FSA’s policy statement in August setting out the package of redress measures was unlawful bec-ause it was based on principles that are not actionable in law.
The BBA also argued that the policy statement suggested consumers might be eligible for redress based on principles which conflicted with, or were different to, the existing spe- cific rules in place that govern the sale of PPI.
But Mr Justice Ouseley rejec- ted the BBA’s argument, saying the FSA was within its rights to use principles to add to specific rules.
He said: “Principles do not contradict rules but add to them to cover areas which are not covered specifically.”
The FSA’s move to clamp down on PPI misselling was triggered by a letter from FOS chairman Christopher Kelly to the then FSA chairman Sir Callum McCarthy in July 2008.
Kelly wrote that although PPI complaints made up a substantial part of the ombudsman’s caseload, it believed the number of cases being referred to the FOS represented a “tiny fraction” of those entitled to compensation.
He said: “My board is in no doubt that simply allowing consumers individually to bring complaints is not the right way to tackle what is a systemic problem.”
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