All firms have an obligation under the FCA Handbook to ensure that their communications with customers are clear, fair and not misleading. We are all human, and we make mistakes. If we say something which is misleading over the phone, will we have adequately complied with our obligations under the rules if we correct the mistake in writing as soon as possible afterwards? The answer must be yes – in most circumstances. But that is not always true.
In 2005, a Mr and Mrs Figurasin applied to a firm called Central Capital Ltd for a loan of £25,000 in order to consolidate their existing debts. Mrs Figurasin spoke to an account manager at CCL over the phone. After Mrs Figurasin had answered some preliminary questions, the account manager was able to offer her a loan of £25,000 for 10 years with a monthly repayment of £393.68. This included payment protection insurance.
Mrs Figurasin accepted the deal. But she was not told in so many words that there was a further loan of £8,750 to pay the single premium for the PPI.
Within a day or two, the Figurasins received a letter from CCL with accompanying enclosures. The letter repeated the offer of a loan of £25,000, repayable over 120 months at the rate of £393.68 pm. One document with the letter, headed Important Information stated that the “optional insurance” in the agreement would cost £8,750. There was also a draft agreement which contained a complete breakdown of the cost of the loan and the PPI.
- The loan was £25,000, payable over 120 months at a rate of £291.61pm.
- Also a loan for the PPI premium of £8,750, payable over 120 months at a rate of £102.07pm.
- The total amount borrowed was thus £33,750, to be repaid at the rate of £393.68.
In due course, Mr and Mrs Figurasin sued CCL in the Manchester County Court for damages for being missold the PPI insurance. They alleged that the communications they had received from CCL were in breach of the ICOB requirement that all communications must be clear, fair and not misleading, essentially because in the initial phone call (which was recorded) it was not made clear to Mrs Figurasin that the PPI would involve further borrowing.
She thought the £393.68 represented the cost of the loan of £25,000 and the PPI was included.
CCL defended the case because it said that whatever the clarity of the original telephone conversation, the later letter with enclosures made the matter clear.
The case was tried before Mr Recorder Abid Mahmood. He found the information given to Mrs Figurasin was not clear and fair and was misleading because the £8,750 cost of the PPI was not mentioned. She was simply told that the cost of the £25,000 loan was £393.68 a month and included PPI.
He also found that CCL authorised the account manager to tell potential customers the cost of the PPI but this was not done in practice in case customers declined the PPI.
He inferred that the withholding of that information was deliberate rather than accidental.
In his judgment, the Recorder said, “… the influence of the telephone call … cannot be underestimated. Mrs Figurasin trusted what she was being told. She believed that … the loan she was going to take out was a £25,000 loan with repayments of … £393.68 per month. … She would not have taken on the PPI had she realised its cost and had she been told in clear terms that there was an additional cost for it which amounted to over £12,000. … [After] [Mr and Mrs Figurasin] had placed their trust in the telephone call, it is not surprising they merely looked at only certain parts of the paperwork that was sent to them. They saw the £25,000 figure (the loan they wanted) and they saw the £393.68 repayment monthly figure. … It was hardly surprising that they did not read the document in full.”
The Recorder awarded damages of £13,000.
CCL went to the Court of Appeal. It argued that the telephone conversation and the documents which followed was a single process; and that in the end the claimants received a full and clear breakdown of the costs. They should have read the documents properly; and were the victims of their own irresponsibility.
‘Calculated to mislead’
The Court of Appeal said that the draft loan agreement, if considered on its own, was clear, fair and not misleading but that the Recorder was entitled to find as he did. “The system … was calculated to mislead.” The documents were not enough to remedy the defects in the telephone communication.
There are several comments to make.
First, this is an exceptional case. Usually a person would be allowed to correct an innocent error if done quickly. Second, people should read what they are sent.
But third, experience shows that too much written disclosure is largely ignored.
Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of moneymatterslegal.co.uk