Plevin (Respondent) V Paragon Personal Finance Limited (Appellant)
Before: Lady Hale, Deputy President; Lord Clarke; Lord Sumption; Lord Carnwath; Lord Hodge
JUDGMENT GIVEN ON 12 November 2014 – Heard on 11 and 12 June 2014
LORD SUMPTION: (with whom Lady Hale, Lord Clarke, Lord Carnwath and Lord Hodge agree)
Introduction
- Payment Protection Insurance (or “PPI”) is sold to borrowers to cover the repayment of specified borrowings upon the occurrence of an insured event, generally sickness, accidental injury, or unemployment. In its report, Market Investigation into Payment Protection Insurance (29 January 2009), the Competition Commission recorded that PPI was commonly sold as part of a package with the loan itself, and in those cases usually provided for a single premium to be paid upfront at the time of the transaction and added to the amount borrowed. Commissions payable to intermediaries were high, typically between 50 and 80 per cent of gross written premium for policies sold in connection with a personal loan. These levels of commission were much higher than those payable for introducing the loan itself, which meant that a large proportion of the profits of loan brokers was derived from selling PPI policies. The Commission found that the market for PPI sold as a package with loans was characterised by limited competition and low levels of substitutability, and that these factors resulted in high premiums relative to what would be expected in a well-functioning market. They made a number of recommendations, including a prohibition of selling PPI in a package with the loan and a prohibition on single premium policies. These recommendations have since been adopted.
- Sections 140A to 140D of the Consumer Credit Act 1974 confer wide powers on the court to reopen unfair credit transactions. This appeal is about the application of those provisions to a PPI policy issued in 2006 to Mrs Susan Plevin.
- Mrs Plevin was then a widowed college lecturer of fifty-nine living in her own house, with a mortgage and various unsecured personal debts. She responded to an unsolicited leaflet put through her letter box by an independent credit broker called LLP Processing (UK) Ltd, which has since gone into liquidation. They offered to arrange the refinancing of her existing liabilities at a competitive rate of interest over a long term, secured on her home. She telephoned LLP and told them that she was interested in borrowing money to pay off her existing debts and fund some home improvements. During the call, LLP completed an internal form called a “Demands and Needs Statement” on the basis of information provided by her. They then proposed that she should borrow £34,000 from Paragon Personal Finance Ltd, repayable in instalments over ten years, and take out PPI for five years with Norwich Union. The PPI premium was £5,780, which was payable at the outset and added to the amount of the loan making a total borrowing of £39,780. Paragon was one of eleven lenders with whom LLP had arrangements to introduce clients. These arrangements allowed them to input details of the proposed loan into a Paragon computer system and obtain a preliminary indication of whether the transaction was likely to be acceptable. Each lender had an arrangement with a designated insurer who underwrote PPI policies associated with its loans. Norwich Union was the insurer designated by Paragon.
- After the telephone conversation, LLP sent Mrs Plevin a letter recording their proposal, and quoting a premium for PPI cover at £5,780. It enclosed a “Key Facts” document describing the insurance cover, a “Borrower Information Guide” produced by the Finance Industry Standards Association (“FISA”) and an application form. The application form, which Mrs Plevin completed and dated 6 March 2006, recorded brief details of her income and outgoings, including her current mortgage, and that she wished to borrow £34,000 and buy a PPI policy. The form was returned to LLP.
- Subsequently, she was telephoned by an employee of Paragon. This call was made in accordance with a standard internal procedure and was known as a “speak with”. It resulted in the generation within Paragon of a computerised form headed “Money Laundering Details”. The body of the form confirms what the title would lead one to expect, namely that it is concerned with satisfying Paragon’s obligations under the money-laundering legislation and regulations. It established Mrs Plevin’s identity, that she had applied for the loan in the amount stated in the application form, the purpose for which she required it and the amount and date of the first payment. It also confirmed that no upfront application fee had been charged by LLP, which would have been contrary to the FISA code of practice. The “speak with” was not intended to appraise the suitability of the transaction for Mrs Plevin’s purposes. On 21 March 2006, Paragon sent her a copy of the credit agreement, the PPI certificate and four cheques, three of which were payable to her designated creditors and the fourth to her personally. These were the only instances of direct contact between Mrs Plevin and Paragon.
- Of the £5,780 premium, 71.8% was taken in commissions from the premium before it was remitted by Paragon to Norwich Union. LLP received £1,870 and Paragon retained £2,280. The net sum of £1,630 was then remitted by Paragon to Norwich Union. The FISA borrowers’ guide told Mrs Plevin that “commission is paid by the lending company”. But neither the amount of the commission nor the identity of the recipients was disclosed.