BBA - v FSA - PPI Judicial Review

[manchesteruni]

 

in 2006 an estimated 6.5 million policies were sold annually making £5.4billion per annum !!!!!

 

Sorry CB just made me smile Is it okay to post the reports of todays hearing on here later ?

[manchesteruni]

It is a bit hidden away down here, I'd have put it in Campaign.

 

Basically (very basically) today was a bit boring, the BBA were on all day and have another hour to go tomorrow, then the FSA and FOS will get their turn. Few small bits of interest but will write those up later on, and as always no idea which way it is going, although the BBA seemed to be flailing a little and going round in circles with their arguments.

[manchesteruni]

Well, only quoting someone else,

 

''even if the application stage takes 3 days then it doesn't really matter as most of the arguments will be heard now whilst deciding on the applications and the substantive stage can get done in day or two. '' so it could still be finished Friday - but sounds like final decision won't be until Easter ?

 

Interesting bit will be whether the JR against FOS is chucked out.

Edited January 25, 2011 by citizenB

[manchesteruni]

Sorry, autolink came up, feel free to edit.

[manchesteruni]

Thanks

[manchesteruni]

Full write up from yesterday. There should be another this evening from today. Sorry for delay, needed to check with the writer it was okay to reproduce.

 

I’ll try and summarise, as best I can, the main thrust of the arguments put forward by Lord Pannick for the BBA that Amethyst hasn’t already covered.

 

The BBA is claiming that the principles in the FSA’s policy statement are unfair additions to the ICOB and ICOBS rules that govern the standards of PPI sales.

 

Although they grudgingly accept that principles are in fact rules and therefore capable of being breached, they argue that the principles are too general and abstract to rely on when there is so much money at stake.

 

A crucial aspect of the principles - and this appears to be common ground with the FSA - is that unlike the more specific rules in ICOB & ICOBS, the breaching of principles in themselves don’t give rise to a legal liability to compensation from a firm to a customer. In other words an individual could not seek monetary compensation from a court in respect of a breach of the principles alone.

 

However I believe that this is distinct from the legal liability for breaching principles that firms have with the FSA as the FSA can and has fined firms for breaching principles in isolation.

 

And because the breaching of principles are incapable of giving risen to a legal liability to a consumer, the BBA is claiming that the FOS should not use the principles as one of the criteria they use in determining complaints and that when they do uphold a complaint, because an FOS compensation award is legally binding, this amounts to a legal liability. Lord Pannick said that the only way that the FSA could legitimately use the principles to confer legal liability was to ask Parliament to change the law.

 

In support of their argument that breaching principles was never meant to give rise to liability, Lord Pannick referred to the original legislation laid down by Parliament that gave the FSA it’s rule making powers and which appeared to expressly exclude principles from giving rise to consumer liability, and the judge commented that this was ‘’good evidence’’.

 

The judge then suggested that the FSA & FOS may argue that the principles were only one of the many rules that the FOS take into account when considering the merits of a complaint and as such the principles in themselves may not be responsible for the liability. He also said that notwithstanding the disputed status of the principles, the FOS were principally obliged to judge complaints on the basis of what, in their opinion, is fair and reasonable and that their discretion could be said to override it.

 

The BBA then went on to argue that the FOS were unaware that breaching principles does not cause liability and that the FOS had a duty to fully understand the legal consequences of the rules it used to judge complaints. In support of this Lord Pannick (rather cleverly I thought) dug out some case law from a judgment that Justice Ousley himself had made in 2002 in a case between the Norwich & Peterborough Building Society and the then Ombudsman, where Justice Ousley had stated that an Ombudsman does indeed have a duty to understand the legal consequences of the rules it uses.

 

However, I’m not so sure that the FOS didn’t know this and I wouldn’t be surprised if they came up with some evidence proving they did.

 

The way in which Lord Pannick repeatedly linked the ‘’misuse’’ of the FSA principles to and by the FOS is clearly meant to tie the FOS into the case against the FSA and make it more difficult for the judge to separate the claims against them, and thus circumvent the issue of the case against the FOS being time barred.

 

Almost nothing was said about the ‘common failings’ in the open letter - which was a major part of the BBA’s initial claim. You may remember that the FSA issued a statement on 24 November saying that the BBA had misinterpreted the common failings as breaches of rules (and not merely examples) and it looks like the FSA’s clarification has worked as the BBA have apparently dropped that part of their case.

 

On the issue of the policy statement requiring firms to conduct ‘root cause analysis’ (ie re-examine past PPI sales and offer compensation where due - even to customers who hadn’t complained) the BBA contended that the FSA should have sought legal permission from the Treasury under section 404 of the Enterprise Act to do this and that in not doing so, banks didn’t receive the procedural‘’safeguards’’ that sec 404 offered them.

 

One interesting thing that Pannick said was that if the BBA win the Judicial Review, ‘’what’s done is done’’. I understood this to mean that the BBA didn’t intend to challenge past complaints upheld by the FOS or fines already issued by the FSA in respect of PPI mis-selling by way of breaching principles.

 

When Lord Pannick had finished giving his submission, the judge summed up the BBA’s case:

 

‘’This is an ‘occupied field’ test. Having set out specific and detailed rules, the FSA are precluded from setting out guidance in that field - save by an amendment of the specific rules’’.

 

Looking objectively at the performance of the BBA’s counsel today I’d say that they started off badly but finished better. But really it’s impossible to gauge the strength of their case until we’ve heard the counter arguments from the FSA & FOS tomorrow.

__________________

 

 

(and I remembered to take out the link this time!) It does sound a little complicated, but then the argument is over quite a small point with massive consequences, it is going to all be a little complex.

 

First up today is Lord Flint for the BBA, then the FSA and FOS will get a turn. Starts 10.30am. Get there early if you are going as yesterdays queues were like X Factor (okay not quite but standing room only)....

[manchesteruni]

Also there is this report from the PA http://www.google.com/hostednews/ukpress/article/ALeqM5hkQnOM-smIxoydOZfj5APIl3QTnA?docId=N0340121295917675269A which covers some of the same points.

 

Although I would make one point on the article; at this point of proceedings

He told Mr Justice Ouseley that the FSA estimated that implementation of the proposals could amount to £3.2 billion based on a 20% take-up by those contacted who bought PPI policies since 2005. "If that assumption is an underestimate of the response rate, the costs are going substantially to increase," he said.

The Judge asked if the BBA were able to evidence and back up that their costs would increase - and they had to say No (as it was just words for effect in reality with no substance).

[manchesteruni]

If you recall that argument did appear to work to swing some sympathy the banks way during the bank charges test case.

[manchesteruni]

Todays report (sorry its not worded as eloquantly as yesterdays)

 

The BBA's Counsel has been speaking this morning again - the main gist of the argument is that the firms historic procedures will reflect ICOBS, but they wont reflect the principles (ie the guidance) issued by FSA so therefore its unfair to expect them to ....the firms are saying they are shooting at a moving target and the rules have moved over time, since the firms procedures at the time only reflected ICOBS and not the guidance.

 

The firms are being a little out of order IMO in presenting to the Judge that all the firms comply with ICOBS - whereas in our opinion they would fail the test even just on ICOBS, but the firms are sayig that even if they folowed icobs they would still fail the test because of the guidance and moving goalposts.

 

cited 2008 decision ombudsman - against Postit????????? need to look that up unless anyone knows off top of their head ? possibly http://www.financial-ombudsman.org.u...decision-B.pdf ?

 

online guidance from FOS issued in 2008 - which differs from ICOBS again.

 

pannicks junior expanded occupied field test argument - (from yesterdays report this is '''''

‘’This is an ‘occupied field’ test. Having set out specific and detailed rules, the FSA are precluded from setting out guidance in that field - save by an amendment of the specific rules’’.''''''' ) once a regulator has issued rules in a particular area they are prohibited from giving further guidance within that area except by way of changing the rules..... bba saying fsa should have changed the rules rather than issuing guidance - no response to that yet from fsa/fos.

 

 

The principle is basically that if the regulators fail to act in good time and get the rules right first time its not for them to apply retrospective rules..... (Agree with that)

 

FOS online guidance 2008 adjudicator entitled to take into account anything to ensure fairness - usual argument of FOS not being tied to specific law/rules etc including the FSA guidance.

 

 

BBA finishing after lunch.

 

FINISHED FOR THE DAY

 

BBA talked till 4pm today - essentially same submission - that the FSA, instead of making amendments to the principles, should have conducted an industry wide review sec 403 FSMA - essence moving goalposts creating liability for damages which they would not otherwise be liable for.

 

In last 15 mins the FSA guy stood up - first point is why has FOS been dragged in to it - the FOS is the second stage of a two stage complaints proces - first is to the firm itself, second is to the Fos. The reason the FOS is in it would be absurd to insist the firms didn't have to apply the principles but the fos could. 2008 guidance isnt reallly even guidance but an online resource.

 

FSA pointed out the BBA arguments not very coherent. This is not a challenge to the use of the principles as they have been in use since 2005 and it is not a challenge to guidance issued and not a challenge to the open letter to the industry itself.

The application is a challenge to the lawfulness of the amendments to DISP. Entire case is about statutory construction - ie. do the FSA have the legal powers to make the changes to DISP - without using section 403/404 FSMA (whichever bit it is about consultation)

 

FSA doesnt have any specific powers to make the handbook. They are using their General powers under FSMA and no one has challenged since 2005. Where as FOS have very specific powers under FSMA and manner it goes about making decisions included in schedule 17 to the Act.

 

 

Hopefully there is something useful in that ramble anyway.

 

Is anyone attending tomorrow that can report back ? We will have someone there on Friday, just tomorrow is a bit difficult.

 

 

FSA last thing the error the BBA are making on one very basic principle, the BBA are saying the change to disp creates a cause of action for consumers where none existed under original rules, however that is a mistake to draw an analogy between a cause of action in court on one hand and a complaint by a customer on the other. It is important because 'what is a complaint' (see para 1.1 DISP) ''a written or oral expression of disatisfaction with a financial service product whether that complaint is reasonable or unreasonable...

 

Resolution of the complaint isnt just about financial redress but can be a replacement/change/apology which is a far cry froma cause of action in court.

 

a breach of disp can be the basis of a customer complaint even if it does not give rise to cause action. Also a breach of disp does not create a cause of action in court - FSMA.

 

The reason the FSA bought out the guidances are because 90% being overturned - FOS so trying to alleviate the burden by telling the banks how to deal with the complaints, but the banks concerned that the letter not just dealing with complaints but need to make their own investigations and root cause analysis and make redress even if the customer hasn't complained.

 

 

 

Judge asked about timing FSA finished by end of tmw, FOS should be done midday Friday, banks then sum up - Nemo not sure if they get to speak or not.... end of Friday the judge will give indication if and when might be able to give judgment - case has been expedited so judgement should be.

 

Judge asked what would happen to firms if they didn't follow guidance - the BBA replied they'd just write to them and tell them off (lol) and poss take action under FSMA. A JR is basically '' if I'm going to quash decision it has to make a difference.'' and BBA couldnt really show it would make a difference whether they win or lose this JR lol.

[manchesteruni]

Only caught the end today which confirms that judgment is reserved.

[manchesteruni]

There is a brief report on Thursday and Fridays hearing events covering the FSA and FOS arguments, but not by the same two people as previous days so I am unable to post it here, frustratingly the link won't work either so you might need some google skills - "Are principles actually rules or not etc" or "linked ICOB /(s) 2 and Principle 7 at this point " should bring it up at the top of Google. It expands on the point you picked up on which seems to be a running theme. There isn't a massive amount of information available and no one appears to have ordered transcripts of the hearings so far - however judgment is expected in the next two weeks. I do think this is more about the FSA powers than PPI in particular.

[manchesteruni]

Most of them. The banks (BBA) stated in court it wouldn't have much effect on actual PPI misselling claims and would only effect the ''more complex'' cases....which kind of shows they are simply using this as a stalling tactic.

[manchesteruni]

Judgment will be handed down 10am Wednesday 20th April 2011.

[manchesteruni]

http://www.bba.org.uk/media/article/bba-statement-regarding-judical-review

 

"The BBA on behalf of its members judicially reviewed the FSA and the FOS regarding the retrospective elements in the proposed FSA rules for handling PPI complaints. The judgement was handed down on 20 April 2011 and found in favour of FSA and the FOS. The BBA was given until 10 May 2011 to appeal. "In the interest of providing certainty for their customers, the banks and the BBA have decided that they do not intend to appeal.

"We continue to believe that there are matters of important principle which we will be taking forward in other ways with the authorities."

Notes to Editors

 

Complaints handling guidance

 

If you feel you have grounds for complaint you should contact your bank directly. There is no need to use a complaints management company.