As the dust from the peak of the payment protection insurance (PPI) scandal slowly begins to settle, a fresh banking scandal worth up to £33bn is beginning to emerge. While the original PPI scandal saw many customers who didn't know they'd been mis-sold PPI receive compensation, the emerging scandal focuses more on undisclosed commission taken by sellers as part of these transactions. It has been discovered that huge commissions to the tune of thousands of pounds (per transaction) had been taken by sellers without the customers' knowledge.
The case that revealed the scandal was that of Susan Plevin, a retired lecturer who borrowed £34,000 in 2006, yet later found out that 70% of the £5,780 premium went straight into the pocket of the seller without her knowledge or consent. In a case that went all the way to the Supreme Court, the lender was found to have breached the 1974 Consumer Credit Act, because they failed to inform Ms Plevin how much of her premium went towards commission, or who would receive it. This was deemed by the court to be an "unfair relationship" under the Act.
So, what does this mean to the average person on the street? In short - if you took out a loan, mortgage, or credit card between 1990 and 2010, you could be eligible for compensation. If you've previously attempted to claim compensation for PPI mis-selling - even if that claim was unsuccessful - you're more likely to be eligible in light of this new case. If you've already made a successful PPI claim and have had money refunded, you're not going to be allowed to make a 'double recovery'.
However, if you've been affected you won't be able to stake a claim right away. Susan Plevin's case - presided over by the Supreme Court - is currently being evaluated by the Financial Conduct Authority (FCA). If - as expected - the FCA adopts the principles laid down in the Plevin case, many more claims are likely to follow.
£25bn of the estimated £33bn bill has already been set aside by the banks to pay the anticipated impending compensation. Lloyds look set to lose the most, with £13bn of the money put aside belonging to them. Hardly surprising, then, that the head of Lloyds Banking Group recently hit out at claims management companies for the cut they took from the billions of pounds worth of PPI pay outs.
While prospective claimants may be thrilled at the claim potential this new crisis could afford them, from a more macro-economic perspective this could be incredibly bad news for the UK economy. Indeed, such was the vast amount of original PPI pay outs that they actually led to a drop in the country's GDP. And, it's certainly worth pointing out that the original PPI scandal has far from fully played out. In January - before Susan Plevin's case went to court - the Financial Ombudsman Service said that they received 4,000 new PPI cases each week, and that we can expect the situation to rumble on for years.
With the latest revelations, it looks like it could be longer still before banks can rest easy in the knowledge that it's over.
Andrew Brown is a Partner and a specialist in commercial disputes at Cardiff and London based law firm Capital Law: www.capital-law.co.uk