Brokers in the firing line yet again following High Court ruling against banks PPI mis-selling
The High Court yesterday rejected the banks' request for a judicial review against the FSA’s mandate on payment protection insurance (PPI).
So what does this ruling mean for insurance brokers?
The banks had been fighting against the FSA’s order for them to review old PPI complaints from the last decade, and wanted to force a judicial review of the FSA decision. This would have forced the regulatory body to think again, and quite possibly retract the order.
The banks lost.
Costs will be 'huge'
Now the banks will have to review those complaints and tell customers to take their cases to the Financial Ombudsmen Service (FOS).
But it’s not the banks that insurance brokers should be worried about. It’s the IFAs and mortgage brokers who are the biggest concern.
The administration costs of reviewing old cases and subsequent compensation payments could force IFAs and mortgage brokers into insolvency.
The outstanding costs – which they should pay – will have to be paid by the FSCS, which will pay for them by increasing the levy on insurance brokers.
The cost of compensation is substantial – anywhere between £2.5bn and £4bn – and threat of firms going to the wall is very real.
Law firm Pinsent Masons partner Thomas Alexis Roberts says: “The BBA in the hearing made the point that there would be insolvencies as a result of the position being upheld because the costs would be so huge.”
He adds: “It’s not great, particularly as the levies have gone up so substantially in the last few years.”
Injustice to brokers
IIB technical director Anne Peel says that some comfort can be found in the fact that the huge costs to insurance brokers were already out in the open, so it should not come as a great surprise.
However, she highlights the unfairness to the broking sector.
Peel said: “I don’t know of any insurance brokers who have sold PPI, its other firms that have failed the customer.”
It is likely that brokers will continue to face increased FSCS levy payments for years to come, which will only stop once Europe decides how it wants to reform compensation, and then the UK regulator will take the lead from Brussels.
Commentators suspect this could be years away.
