Financial Guidance and Claims Bill [HL]

WRITTEN EVIDENCE SUBMITTED BY BLACKLION LAW LLP (FGCB15)

FINANCIAL GUIDANCE AND CLAIMS BILL PUBLIC BILL COMMITTEE

1. ABOUT BLACKLION LAW

1.1 BlackLion Law LLP is law firm specialising in complex financial claims. We specialise in the litigation of financial irregularity claims, acting on behalf of claimants, to recover payment protection insurance (PPI) mis-sold to them by banks.

1.2 This submission is made by Negar Yazdani, founder and partner at BlackLion Law LLP. Negar has overseen more than 500,000 PPI cases against banks through to conclusion in the past eight years, including pursuing cases up to the High Court. She is a member of the Alliance of Claims Companies and she was an initial member and legal advisor to the Professional Financial Claims Association. These organisations represent the leading claims management companies and law firms in the UK.

1.3 Negar qualified as a lawyer in 2000 at Mishcon de Reya before she moved to Brown & Wood, a leading New York law firm, to specialise in capital markets and structured finance, acting predominantly on behalf of financial institutions. She then moved into investment banking with roles at Morgan Stanley (Debt Capital Markets – Financial Institutions), Merrill Lynch (Debt Restructuring, Liability Management and Structured Finance) and Royal Bank of Scotland (Real Estate Commercial Mortgage Backed Securitisation and Real Estate Finance – Origination & Structuring). Having acquired in-depth skills and knowledge of the industry, she launched BlackLion Law in 2010 to act against the banks using her comprehensive knowledge of the industry.

2. EXECUTIVE SUMMARY

2.1 This submission is concerned with Clauses 25-28 of the Financial Guidance and Claims Bill. Clauses 25-28 of the Bill would legislate for an interim fee cap of 20% to be placed on companies making PPI claims on behalf of consumers, in advance of the Financial Conduct Authority (FCA) taking over responsibility for claims management regulation. We consider this is a major consumer protection issue.

2.2 We are concerned that by including "legal service providers" as a category of organisation to which the fee cap would apply, the Financial Guidance and Claims Bill will have the unintended consequence of restricting the ability of law firms to take on complex PPI cases on behalf of the consumers.

2.3 Law firms can identify consumers that have an automatic right to PPI repayment, including public sector employees. Law firms can also identify new Plevin claims, reopen previously rejected claims and obtain non-tipping point offers, which CMCs cannot. Law firms have substantially higher costs than CMCs, to pay for qualified lawyers and take cases through the Courts.

2.4 We would like to see Clauses 25-28 of the Bill amended to remove law firms from the proposed fee cap to ensure they are able to take as many cases as possible on behalf of consumers.

3. CONSUMER PROTECTION

3.1 PPI policies were highly profitable to the banking industry and were excessively sold to the public. The FCA estimates that as many as 64 million PPI policies were sold between 1990 and 2010 [1] . In 2014 the FCA estimated that the value of PPI premiums was £44 billion [2] .

3.2 So far, £35 billion of premium and interest has been paid back, of which interest makes up on average 40% of the refund. Therefore, the real figure for repayment is £70 billion. The time limit for making claims combined with the proposed fee cap will mean that consumers will never receive the real compensation to which they are entitled.

3.3 Further, a significant number of previously rejected claims can now be re-opened on the basis of the Supreme Court’s judgement in Plevin (see below). We understand that approximately 75% of previously rejected claims can be re-opened.

3.4 Therefore, there remains a considerable amount of money that was unfairly acquisitioned by banks and has not been reimbursed to consumers. This is a major consumer protection issue that should be of concern to parliament.

3.5 Maintaining the option to receive assistance when in the pursuit of mis-sold PPI reimbursement is strongly supported by the public. 65% of the population believe that consumers should have the option to receive professional help when claiming money back from banks that mis-sold them PPI [3] . Only 5% disagree that professional help should be available to consumers. [4]

3.6 Data also shows that only 48% of adults feel confident investigating and reclaiming money that was mis-sold to them as PPI. Only 41% of young people feel confident [5] .

4. DISTINCTION BETWEEN LAW FIRMS AND CLAIMS MANAGEMENT COMPANIES

4.1 It is important to understand the difference between the role that law firms and CMCs have in helping consumers to reclaim PPI.

4.2 The Financial Guidance and Claims Bill was only intended to apply a fee cap to CMCs. In order to avoid this regulation, some CMCs applied to the Solicitors Regulation Authority (SRA) to change their registered businesses to Alternative Business Structures (ABSs) which classifies them as a "legal service provider". The SRA was willing to accept these applications for CMCs to become ABSs as the annual fees they collect are determined on turnover, which can be high. Although CMCs belong to the same category as law firms, they are very different business models.

4.3 CMCs have been regularly criticised for the aggressive tactics they use to target potential customers. CMCs usually employ administrative unqualified staff who are not experts in financial management or PPI. CMCs have also been criticised for submitting ‘bogus’ PPI claims. In the Second Reading debate of the Financial Guidance and Claims Bill, Secretary of State for Work and Pensions, Esther McVey MP accurately stated that there is "evidence of malpractice in the claims management sector in the form of disproportionate fees, nuisance calls, poor service, and the encouragement of fraudulent claims."

4.4 Law firms are totally distinct in their behaviour and interaction with the public. Law firms employ qualified legal experts who use relevant case law to secure compensation that CMCs are unable to.

5. THE PLEVIN JUDGMENT

5.1 In 2014, the Supreme Court handed down a judgement in the case of Plevin v Paragon Personal Finance (known as the "Plevin" case) which established that the non-disclosure of the amount of the commission within PPI sold to Mrs Plevin (a university lecturer) made the bank’s relationship with her unfair. As a result, law firms can now re-open PPI claims that have been previously rejected by banks or the Financial Ombudsman Service by using the Plevin judgement on behalf of consumers.

6. IMPACT OF PLEVIN

6.1 The Plevin decision has widespread importance for consumers and banks. After the Plevin judgment, the FCA decided that further rules were required in order to deal with Plevin-related PPI cases [6] .  The FCA concluded that the failure to disclose commission gives rise to the presumption of an unfair relationship. The FCA intervened in the way in which non-contentious PPI complaints should be handled going forward (by creating ‘tipping point’ offers which reduces the total payable compensation – see below) and has identified 1.2 million previously rejected cases that are eligible to be re-opened in light of Plevin.

7. THE PPI DEADLINE

7.1 The FCA has set a deadline of 29 August 2019 for consumers to bring their PPI complaints. After this date, the rights of consumers to make a PPI claim will be lost. However, the deadline only applies to complaints submitted to the Financial Ombudsman Service, whilst PPI complaints that law firms bring by way of Court proceedings can continue.

8. THE FCA-ESTABLISHED LEVEL OF REDRESS

8.1 The FCA introduced the concept of a 50% tipping point redress. This means that within a PPI claim, anything that is 50% or less of the commission paid does not have to be refunded to the customer, and refunds will only be calculated on the commission amount which exceeds 50%. For example, in Mrs Plevin’s case, commission constituted 71.8% of the PPI premium she was paying. However, after applying the tipping point, only 21.8% was repayable (the difference between 50% and the 71.8% commission paid).

8.2 Whilst this tipping point applies to PPI cases brought by individuals and CMCs, law firms which pursue their claims through the Courts are not bound by the FCA’s redress limitations. For example, in the case of Verrin (Luke John Verrin & Jessica Winkett v Welcome Financial Services Ltd 2016) the claimants received the return of all PPI premiums paid. Only law firms can achieve these results as only qualified lawyers can bring proceedings through the courts.

9. IMPACT OF FEE CAP ON LAW FIRMS

9.1 Law firms undertake PPI claims because the process of claiming compensation can be complex and time consuming. The FCA has said that a high proportion of unclaimed PPI cases are older PPI sales. [7] These remain the most complex cases.

9.2 Law firms have substantially greater costs that CMCs. The cost of representing consumers on complex cases, by qualified lawyers and using relevant case law means they need to charge more for their services than CMCs.

9.3 The unintended consequence of placing a considerable financial disincentive on law firms to take on complex PPI claims will substantially reduce the number of PPI claims that are made.

9.4 As a result of Clauses 25-28 of the Bill, considerable numbers of deserving consumers would not be able to reclaim mis-sold PPI. Many prospective claimants are vulnerable people in society, with a range of issues that hinders their ability to claim mis-sold PPI without the knowledge and experience of law firms. For example, people with pre-existing medical conditions who bought PPI would never have been able to claim on their insurance. A large group of prospective claimants, including public sector employees (for example teachers, nurses, hospital administraters, police officers, armed services personnel etc) are still eligible for repayments. Self-employed people (for example, all black cab drivers with cab loans) would never have been able to claim on their mis-sold PPI. Law firms help these consumers reclaim the money they are owed.

9.5 We are concerned that placing a fee cap on law firms will dramatically restrict their ability to take these cases on behalf of consumers.

10. BANKS SHOULD PAY FEES, NOT CONSUMERS

10.1 We believe consumers should receive the full compensation they are entitled to and that banks should pay the reasonable costs of their legal representatives.

10.2 In the past, law firms did not deduct any fees from clients’ compensation as law firms were able to recover success fees from the banks in almost all fast track and multi-track cases post-litigation. However, the Jackson reforms, introduced in April 2013 [8] , prohibited the charging of success fees. Margins for undertaking PPI claims for law firms are low and law firms are unable to absorb fees in any other way, other than charging a fee from their damages on a successful outcome basis only. Law firms also take on a number of pro bono cases at no charge or on a reduced fee basis where the affected consumers claim benefits or have very low incomes.

11. FURTHER INFORMATION

11.1 Negar Yazdani is available to provide oral evidence to the Financial Guidance & Claims Bill Committee on these issues.

January 2018

 

Prepared 1st February 2018