When is it too late to bring a PPI claim?

The Court of Appeal has recently handed down judgment in favour of a lender in a case regarding the time limits for bringing a payment protection insurance (PPI) claim. How will this impact the huge number of PPI claims that continue to be heard by the courts?

Between 1990 and 2010, approximately 64m PPI policies were sold to UK consumers in connection with credit cards, mortgages and loans. These policies were designed to cover repayments if the consumer could not pay them for a reason such as ill health or unemployment.

The deadline for making a PPI claim by way of the Financial Ombudsman was in August 2019. Despite this, it is still possible to bring a claim for compensation under section 140A of the Consumer Credit Act 1974 if the lender was paid a high level of commission for the sale of PPI and did not tell the consumer. This is sometimes referred to as a Plevin claim, named after the leading Supreme Court case of Plevin v Paragon Personal Finance Limited.

This was the basis of the claim in Smith & Anor v Royal Bank of Scotland Plc. Ms Smith had taken out PPI when she opened a credit card with RBS in 2000. The PPI was added monthly to her credit card balance and interest would be added to the sums due if not paid in full each month. Unknown to Ms Smith at the time, RBS received commission of over 50% with regard to her policy premiums.

The main question for the Court of Appeal was to consider whether Ms Smith’s claim was time-barred. She had terminated the PPI policy in 2006 and the last payment was made by her in relation to the PPI in April 2006, but the credit card agreement continued until it was eventually ended in 2015. RBS argued that the six-year time limit for bringing a claim began to run on the date when the final payment was made under the PPI policy, whereas Ms Smith’s case was that it began to run at the end of the credit card agreement itself, some time later in 2015.

The Court of Appeal decided unanimously in favour of RBS. It found that the only unfairness in the credit relationship between Ms Smith and RBS was the undisclosed commission paid in relation to the PPI; there was nothing unfair about the credit card agreement itself. Accordingly, the agreement ceased to be unfair once the final PPI policy premium was paid in April 2006. Therefore, limitation started to run in 2006 and Ms Smith’s final opportunity to issue a claim was in 2012, six years from the date the last payment was made.

The Court of Appeal said: “There is nothing [in the Consumer Credit Act 1974] which somehow means that once a credit relationship was unfair for some reason, that unfairness always and necessarily has to persist for all time as long as the credit agreement persists, as a matter of law and irrespective of the facts.”

The question of whether a credit relationship is unfair is a question of fact which can change over time; i.e. just because a relationship was unfair, it does not mean that it will always remain so.  Here, the only unfairness related to the PPI, so once there were no further payments made in relation to the PPI, that marked the time for the limitation clock to start running.

A further point of appeal raised by RBS was that Ms Smith could not claim for an unfair relationship because the PPI element of the credit card agreement had ended before the unfair relationship provisions took effect. However, the court rejected this argument because the wider credit relationship between Ms Smith and RBS did not cease until 2019, long after the unfair relationship provisions had taken effect.

This decision will, of course, be welcomed by lenders who offer credit cards, or other forms of loans where the PPI element does not exist for the whole duration of the agreement itself, and is likely to see an increased number of claims being found to be time-barred.