1. (1)

   1This appendix sets out how:3

   1. (a)

      3a firm should handle complaints relating to the sale of a payment protection contract by the firm which express dissatisfaction about the sale, or matters related to the sale, including where there is a rejection of claims on the grounds of ineligibility or exclusion (but not matters unrelated to the sale, such as delays in claims handling); and3

   2. (b)

      3a firm that is a CCA lender and which has received such a complaint should consider whether there was a failure to disclose commission in relation to the sale of a payment protection contract which covers or covered or purported to cover a credit agreement (this includes partial coverage).

2. (2)

   It relates to the sale of any payment protection contract whenever the sale took place and irrespective of whether it was on an advised or non-advised basis; conducted through any sales channel; in connection with any type of loan or credit product, or none; whether the insurer was in the same group as the firm or not; whether the premium was financed by the credit product or not;3 and for a regular premium or single premium payment. It applies whether the policy is currently in force, was cancelled during the policy term or ran its full term.

3. (3)

   3It does not set out how a firm which has received a complaint referred to in (1)(a) should assess:4

   1. (a)

      whether the firm’s conduct of the sale was in breach of a fiduciary duty where there has been a failure to disclose either the existence of, or the level of, any commission and/or profit share paid;4

   2. (b)

      whether any omission (other than the omission referred to in DISP App 3.3A.2E) to disclose either the existence of, or level of, commission and/or profit share made the relationship unfair under section 140A of the CCA;4

   3. (c)

      any other issue not dealt with in step 1 or step 2 set out in this appendix.4

   Complaints concerning such issues should be dealt with under DISP 1.4.1R.

4. (4)

   3It requires firms to send written communications to complainants in certain circumstances5 (see DISP App 3.11).

5. (5)

   3There are further provisions on the application of this appendix in DISP App 3.10.

3In the case of a complaint described in DISP 2.8.9R(2)(d), the firm need only consider step 1 and only to the extent of the relevant grounds of rejection of the claim.

At step 1, the3 aspects of complaint handling dealt with in this appendix are how the firm should:

1. (1)

   assess a complaint in order to establish whether the firm's conduct of the sale failed to comply with the rules, or was otherwise in breach of the duty of care or any other requirement of the general law (taking into account relevant materials published by the FCA, other relevant regulators, the Financial Ombudsman Service and former schemes). In this appendix this is referred to as a "breach or failing" by the firm;

2. (2)

   determine the way the complainant would have acted if a breach or failing by the firm had not occurred; and

3. (3)

   determine appropriate redress (if any) to offer to a complainant.

At step 1, where3 the firm determines that there was a breach or failing, the firm should consider whether the complainant would have bought the payment protection contract in the absence of that breach or failing. This appendix establishes presumptions for the firm to apply about how the complainant would have acted if there had instead been no breach or failing by the firm. The presumptions are:

1. (1)

   for some breaches or failings (see DISP App 3.6.2 E), the firm should presume that the complainant would not have bought the payment protection contract they3 bought; and

2. (2)

   for certain of those breaches or failings (see DISP App 3.7.7 E), where the complainant bought a single premium payment protection contract, the firm may presume that the complainant would have bought a regular premium payment protection contract instead of the payment protection contract they3 bought.

There may also be instances where a firm concludes after investigation at step 13 that, notwithstanding breaches or failings by the firm, the complainant would nevertheless still have proceeded to buy the payment protection contract they3 bought. CCA lenders should still go on to consider step 2 in such cases.3

3At step 2, the aspects of complaint handling dealt with in this appendix are how a CCA lender should:

1. (1)

   assess a complaint to establish whether failure to disclose commission gave rise to an unfair relationship under section 140A of the CCA; and

2. (2)

   determine the appropriate redress (if any) to offer to a complainant.

In this appendix:

1. (1)
   1. (a)

      at step 1,3 “historic interest” means the interest the complainant paid to the firm because a payment protection contract was added to a loan or credit product;3

   2. (b)

      at step 2, “historic interest” means in relation to any sum, the interest the complainant paid as a result of that sum being included in the loan or credit product;3

   2
2. (2)

   "simple interest" means a non-compound rate of 8% per annum;3

3. (3)

   "claim" means a claim by a complainant seeking to rely upon the policy under the payment protection contract that is the subject of the complaint;3

4. (4)

   “actual profit share” means a reasonable estimate of the profit share that was paid under profit share arrangements and that is notionally attributable to the payment protection contract;3

5. (5)

   “anticipated profit share” means a reasonable estimate of the profit share which it was reasonably foreseeable at the time of sale would be paid over the relevant period or periods under profit share arrangements, and that would be notionally attributable to the payment protection contract;3

6. (6)

   “commission” means the part of the total amount paid in relation to a payment protection contract that was not due to be passed to and retained by the insurer, excluding any sums which may be payable under profit share arrangements;3

7. (7)

   “failure to disclose commission’ means failure to make the disclosure at DISP App 3.3A.2E;3

8. (8)

   “profit share arrangements” means arrangements (including contractual) that firms have to potentially receive back some of the total amount paid in relation to a payment protection contract which had initially gone to the insurer. For example, these arrangements might include amounts paid to cover potential claims on policies, but which remain unspent after a fixed period, for example because actual claims did not exceed certain levels. Other arrangements might take account of variable factors other than claims, including, for example, the value of rebates paid upon early cancellations of payment protection contracts;3

9. (9)

   “redress period” means, in relation to a regular premium payment protection contract, any period when the commission paid plus the amount representing actual profit share in respect of that period exceeded 50% (or such other percentage calculated under DISP App 3.7A.4E) of the total amount paid in relation to the payment protection contract in respect of that period;3

10. (10)

    “relevant period or periods” means:3

    1. (a)

       in relation to a single premium payment protection contract, the scheduled length of the contract;3

    2. (b)

       in relation to a regular premium payment protection contract, the period or periods over which commission was known or was reasonably foreseeable at the time of sale; and3

11. (11)

    “total amount paid” means the total amount paid by the consumer in relation to a payment protection contract, including any Insurance Premium Tax payable3.

3For the purposes of the definitions of “actual profit share”, “anticipated profit share” and “commission”, where the firm has no or incomplete records of the level of commission or profit share arrangements relevant to a particular payment protection contract, it should make reasonable efforts to obtain relevant information from third parties. Where no such information can be obtained, the firm may make reasonable assumptions based on, for example, commission levels or profit share arrangements in relation to which records are held, and general commercial trends in the industry during the period in question.

1This section applies to both step 1 and step 2.

The firm should consider, in the light of all the information provided by the complainant and otherwise already held by or available to the firm, whether (at step 1)1 there was a breach or failing by the firm or (at step 2) whether there was a failure to disclose commission1.

The firm should seek to establish the true substance of the complaint, rather than taking a narrow interpretation of the issues raised, and should not focus solely on the specific expression of the complaint. This is likely to require an approach to complaint handling that seeks to clarify the nature of the complaint.

A firm may need to contact a complainant directly to understand fully the issues raised, even where the firm received the complaint from a third party acting on the complainant's behalf. The firm should not use this contact to delay the assessment of the complaint.

Where a complaint raises (expressly or otherwise) issues that may relate to the original sale or a subsequently rejected claim then, irrespective of the main focus of the complaint, the firm should pro-actively consider whether the issues relate to both the sale and the claim, and assess the complaint and determine redress accordingly.

If, during the assessment of the complaint, the firm uncovers evidence of a breach or failing, or a failure to disclose commission, that was1 not raised in the complaint, the firm should consider those other aspects as if they were part of the complaint, at step 1 or 2 as appropriate1.

The firm should take into account any information it already holds about the sale and consider other issues that may be relevant to the sale identified by the firm through other means, for example, the root cause analysis described in DISP App 3.4.

The firm should consider all of its sales of payment protection contracts to the complainant in respect of re-financed loans that were rolled up into the loan covered by the payment protection contract that is the subject of the complaint. The firm should consider the cumulative financial impact on the complainant of any previous breaches or failings in those sales or, where relevant, any previous failures to disclose commission1.

1This section applies to step 1. However, CCA lenders should also consider it at step 2 to the extent that it is relevant to their consideration of unfairness.

Where a complaint is made, the firm should assess the complaint fairly, giving appropriate weight and balanced consideration to all available evidence, including what the complainant says and other information about the sale that the firm identifies. The firm is not expected automatically to assume that there has been a breach or failing.

The firm should not rely solely on the detail within the wording of a policy's terms and conditions to reject what a complainant recalls was said during the sale.

The firm should recognise that oral evidence may be sufficient evidence and not dismiss evidence from the complainant solely because it is not supported by documentary proof. The firm should take account of a complainant's limited ability fully to articulate his complaint or to explain his actions or decisions made at the time of the sale.

Where the complainant's account of events conflicts with the firm's own records or leaves doubt, the firm should assess the reliability of the complainant's account fairly and in good faith. The firm should make all reasonable efforts (including by contact with the complainant where necessary) to clarify ambiguous issues or conflicts of evidence before making any finding against the complainant.

The firm should not reject a complainant's account of events solely on the basis that the complainant signed documentation relevant to the purchase of the policy.

The firm should not reject a complaint because the complainant failed to exercise the right to cancel the policy.

The firm should not consider that a successful claim by the complainant is, in itself, sufficient evidence that the complainant had a need for the policy or had understood its terms or would have bought it regardless of any breach or failing by the firm.

The firm should not draw a negative inference from a complainant not having kept documentation relating to the purchase of the policy for any particular period of time.

In determining a particular complaint, the firm should (unless there are reasons not to because of the quality and plausibility of the respective evidence) give more weight to any specific evidence of what happened during the sale (including any relevant documentation and oral testimony) than to general evidence of selling practices at the time (such as training, instructions or sales scripts or relevant audit or compliance reports on those practices).

The firm should not assume that because it was not authorised to give advice (or because it intended to sell without making a recommendation) it did not in fact give advice in a particular sale. The firm should consider the available evidence and assess whether or not it gave advice or made a recommendation (explicitly or implicitly) to the complainant.

The firm should consider in all situations whether it communicated information to the complainant in a way that was fair, clear and not misleading and with due regard to the complainant's information needs.

In considering the information communicated to the complainant and the complainant's information needs, the evidence to which a firm should have regard includes:

1. (1)

   the complainant's individual circumstances at the time of the sale (for example, the firm should take into account any evidence of limited financial capability or understanding on the part of the complainant);

2. (2)

   the complainant's objectives and intentions at the time of the sale;

3. (3)

   whether, from a reasonable customer's perspective, the documentation provided to the complainant was sufficiently clear, concise and presented fairly (for example, was the documentation in plain and intelligible language?);

4. (4)

   in a sale that was primarily conducted orally, whether sufficient information was communicated during the sale discussion for the customer to make an informed decision (for example, did the firm give an oral explanation of the main characteristics of the policy or specifically draw the complainant's attention to that information on a computer screen or in a document and give the complainant time to read and consider it?);

5. (5)

   any evidence about the tone and pace of oral communication (for example, was documentation read out too quickly for the complainant to have understood it?); and

6. (6)

   any extra explanation or information given by the firm in response to questions raised (or information disclosed) by the complainant.

The firm should not reject a complaint solely because the complainant had held a payment protection contract previously.

DISP App 3.3A.2E reflects section 140B(9) of the CCA which provides (in summary) that, if the debtor alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary.

The presumption that failure to disclose commission gave rise to an unfair relationship is rebuttable. Examples of factors which may contribute to its rebuttal include:

1. (1)

   the CCA lender did not know and could not reasonably be expected to know or foresee the level of commission and anticipated profit share; or

2. (2)

   the complainant could reasonably be expected to be aware of the level of commission and anticipated profit share (e.g. because they worked in a role in the financial services industry which gave them such awareness); or

3. (3)

   disclosure would have made no difference whatsoever to the complainant’s judgement about the value of the payment protection contract. This factor is only likely to be relevant in limited circumstances. If the firm concludes that disclosure would have at least caused the complainant to question whether the payment protection contract represented value for money and whether it was a sensible transaction to enter into (regardless of whether they may or may not have ultimately gone ahead with the purchase), then the presumption is unlikely to be rebutted due to this factor.

The presumption that failure to disclose commission did not give rise to an unfair relationship is also rebuttable. An example of a factor which may contribute to its rebuttal includes that the complainant was in particularly difficult financial circumstances at the time of the sale.

For the purposes of the provisions in this section, what is reasonably foreseeable should be determined with regard to all relevant factors, including, where relevant, any agreement specifying rate changes over the first years of the payment protection contract’s life (as in some regular premium payment protection contracts), and the length of time over which the commission will be governed by the agreement between lender and insurer that is in place at the time of sale.

1This section applies to both step 1 and step 2, as appropriate.

DISP 1.3.3 R requires the firm to put in place appropriate management controls and take reasonable steps to ensure that in handling complaints it identifies and remedies any recurring or systemic problems. If a firm receives complaints about its sales of payment protection contracts it should analyse the root causes of those complaints including, but not limited to, the consideration of:

1. (1)

   the concerns raised by complainants (both at the time of the sale and subsequently);

2. (2)

   the reasons for both rejected claims and complaints;

3. (3)

   the firm's stated sales practice(s) at the relevant time(s);

4. (4)

   evidence available to the firm about the actual sales practice(s) at the relevant time(s) (this might include recollections of staff and complainants, compliance records, and other material produced at the time about specific transactions, for example call recordings and incentives given to advisers);

5. (5)

   relevant regulatory findings; and

6. (6)

   relevant decisions by the Financial Ombudsman Service.

Where consideration of the root causes of complaints suggests recurring or systemic problems in the firm's sales practices for payment protection contracts, the firm should, in assessing an individual complaint, consider whether the problems were likely to have contributed (at step 1) 1to a breach or failing or (at step 2) to a failure to disclose commission 1in the individual case, even if those problems were not referred to specifically by the complainant.

Where a firm identifies (from its complaints or otherwise) recurring or systemic problems in its sales practices for a particular type of payment protection contract, either for its sales in general or for those from a particular location or sales channel, it should (in accordance with Principle 6 (Customers' interests) and to the extent that it applies), consider whether it ought to act with regard to the position of customers who may have suffered detriment from, or been potentially disadvantaged by such problems but who have not complained and, if so, take appropriate and proportionate measures to ensure that those customers are given appropriate redress or a proper opportunity to obtain it. In particular, the firm should:

1. (1)

   ascertain the scope and severity of the consumer detriment that might have arisen; and

2. (2)

   consider whether it is fair and reasonable for the firm to undertake proactively a redress or remediation exercise, which may include contacting customers who have not complained.

For example, the complainant may have reasonably expected that the claim would have been paid where the firm failed to disclose appropriately an exclusion or limitation later relied on by the insurer to reject the claim and it should have been clear to the firm that that exclusion or limitation was relevant to the complainant.

The disclosure in DISP App 3.7A.7E may:

1. (1)

   be in the form of a range so long as it is sufficiently narrow to be clear and informative: and

2. (2)

   specify the current level of commission and currently anticipated profit share separately.

Where the complainant's loan or credit card is in arrears the firm may, if it has the contractual right to do so, make a payment to reduce the associated loan or credit card balance, if the complainant accepts the firm's offer of redress. The firm should act fairly and reasonably in deciding whether to make such a payment.

In assessing redress, the firm should consider whether there are any other further losses that flow from its breach or failing or from its failure to disclose commission (as applicable), 1 that were reasonably foreseeable as a consequence of the firm's breach or failing or of its failure to disclose commission,1 for example, where the payment protection contract's cost or rejected claims contributed to affordability issues for the associated loan or credit which led to arrears charges, default interest, penal interest rates or other penalties levied by the lender.

Where, for single premium policies, there were previous breaches or failings or previous failures to disclose commission1 (see DISP App 3.2.7 G) the redress to the complainant should address the cumulative financial impact.

The firm should make any offer of redress to the complainant in a fair and balanced way. In particular, the firm should explain clearly to the complainant the basis for the redress offered including how any compensation is calculated and, where relevant, the rescheduling of the loan, and the consequences of accepting the offer of redress.

The guidance in this appendix for step 1 applies in relation to complaints about sales whenever the sale took place.1 For complaints about sales that took place prior to 14 January 2005, a firm should take account of the evidential provisions in this appendix for step 1 1as if they were guidance.