Monthly figures collated from members of the PFCA show that the use of alternative redress is levelling off. However, although the use of alternative redress may have reduced from the heights of the second quarter of last year, the detail shows that some lenders are still applying it to more than 1 in 10 of their offers. Research carried out by the PFCA shows evidence that alternative redress is still being applied inappropriately. As shown in the notes below, alternative redress can only be applied in very specific circumstances; when a single premium policy was not appropriate, but a regular premium PPI policy would have been appropriate. Too many consumers, where even a regular premium PPI product was not relevant to their needs and circumstances, are still offered compensation on an alternative redress basis. They should be fully and correctly compensated for the product having being mis-sold.
Analysis of over 70,000 PPI claim offers
The PFCA have analysed 70,755 redress offers over the last 12 months. Click here to see this month’s PFCA data and graphs. In the last month, the research highlighted that consumers were ‘worse off’ by an average of £728 when alternative redress was applied. Lloyds Banking Group, remain the largest user of alternative redress.
What is Alternative or Comparative Redress?
The concept of alternative or comparative redress is set out in the Financial Conduct Authority [FCA] redress handbook under the section relating to “Dispute Resolution: Complaints”. These rules are known as “DISP” rules. Within DISP there is a section that relates to “Alternative approach to redress: single premium policies” [DISP App 3.7.7]. However, the opening narrative to this section makes it clear that the alternative redress only applies when the only dispute between the customer and product provider is that the product provider sold a single premium rather than a regular premium product. Once that high bar has been reached, the product provider may use the provisions in DISP App 3.7.10 and can deduct from the compensation paid to the customer the amount the customer would have paid for the alternative regular premium. In cases where this deduction is applied incorrectly, the consumer detriment is considerable.
FCA figures point to huge consumer detriment
Although, there will be cases where alternative redress is relevant to a customers circumstances at the time a policy was arranged those cases are in the minority. The outstanding question that regulators need to consider is what happens to customers who have accepted an inappropriate alternative redress offer without even knowing it? The Financial Conduct Authority [FCA] most recent pay-out figure shows that in the last reported month (December 2013) £324m of PPI compensation was paid to consumers. Using an average individual pay-out figure this shows that around 100,000 customer complaints were closed in that month – the equivalent of 1.2 million closed cases in that year. This suggests that over 120,000 customers may have lost over £87m in payments in 2013 alone! Clearly, to avoid another PPI scandal product providers should be forced to re-open those cases.
PPI: Britain’s Biggest Banking Scandal – Listen Below
Alternative redress [also known as comparative redress]
PFCA monthly update to 28th February 2014 – View Data