PAGES 15 & 16 of this earlier document make interesting reading
"We identified a common failing of not disclosing to the customer that the
term of the cover was shorter than the term of the credit agreement and the
consequences of such mismatch. Our view is that failing to disclose such a
16 CP10/6: Payment Protection Insurance complaints (March 2010)
mismatch and its financial consequences to the customer would not comply
with the Principles. From the introduction of ICOBS 6.4.9R(3) this would also
have been a breach of the rule."
this means the purchaser of PPI thought he was buying insurance for the length of the loan not just for 5 years :evil:r
AND ON PAGE 34
3.10 The main objection from the industry was that the overall effect of the guidance
was unbalanced and unfair because it made it very difficult for firms to reject any
PPI complaint, even where the firm felt it had acted quite correctly at point of sale.
Three main critcisms were that:"
Consumer Credit Act implications
We agree that the approaches give rise to some implications for the existing credit
agreement(s) under the Consumer Credit Act (CCA).
We contacted the Office of Fair Trading to understand the implications for firms in
this area and reached the following conclusions.
Where the PPI is sold alongside a loan, there are in fact two credit agreements.
One for the principal loan and a second to finance the optional PPI. The former
is debtor-creditor (d-c) and the latter is debtor-creditor-supplier (d-c-s). This is
irrespective of whether the creditor is also the supplier of PPI.
In CCA terms, where the PPI is sold alongside a loan, there are multiple agreements
within section 18(1)(a) CCA. Each part – the principal credit agreement and the
PPI credit agreement – would be treated as a separate agreement by virtue of
section 18(2). They may be documented together, subject to the Consumer Credit
(Agreements) Regulations 1983 (CCA Regulations). Regs 2(8) and 2(9) of the
current CCA Regulations allow for a common heading and signature box and
common statements of protection and remedies. Reg 2(7) requires an additional
form of consent.
If PPI is found to have been mis-sold, the remedy is generally to return the parties
to the position they would have been in had the PPI not been taken out. This should
lead to the cancellation of the PPI credit agreement and refund of monies paid by
the debtor. This is consistent with Article 15.1 of the new Consumer Credit Directive
which states that ‘where the consumer has exercised a right of withdrawal, based on
Community law, concerning a contract for the supply of goods or services, he shall
no longer be bound by a linked credit agreement’.
As the PPI credit agreement is separate (for CCA purposes) from the principal credit
agreement, it should be possible to cancel the former without affecting the latter.
Clearly though, if payments were made together as a single monthly instalment, the
amount of the instalment will need to be adjusted (as our approaches indicate). This
would not require a modification of the principal credit agreement. It would simply
be a consequence of cancellation of the PPI credit.
Even if the principal credit and PPI credit were treated as one agreement for CCA
purposes (which we do not believe would be the intended effect of section 18
CCA), it would be possible to modify the agreement to remove the PPI elements.
This could be done via a modifying agreement for section 82(2) CCA purposes. The debtor would have to agree (but we generally see no reason why he would not).
Alternatively, the creditor could simply refrain from collecting part of the payment
and from enforcing the relevant aspects of the agreement. This could be done as
a unilateral concession, although this would be less satisfactory from the debtor’s
point of view as it would not have the effect of amending the contract and in
theory the creditor could withdraw the unilateral concession at any time. It is better
(and clearer all round) to have a modifying agreement, signed by both parties, and
binding on both of them. At the very least the concession should be documented in
some durable way, such as a letter acknowledging it, given the potential for disputes.
Consequently, we do not see why our approaches discussed above should raise CCA
enforceability issues.28 However, a firm should take care in how it documents the
arrangements and what information it gives to the consumer.