PPI and private client practitioners

On 5 February 2019, the official receiver announced that the Insolvency Service was instituting checks on the entitlement of bankrupts to PPI compensation. It has employed Deloitte to reopen 600,000 closed bankruptcies going back to 1 January 2000.

You need to weigh up the logistics of going through your back files against the risk of possible liability

Clearly many estates must have a right to PPI compensation, as must many people who have lost capacity to manage their own property and financial affairs.

In May 2019, STEP issued a briefing note in which it suggested that “a back-book review of cases active since 1 January 2000, mirroring the stance taken by the official receiver, would not appear unreasonable” for those acting as, or advising, the following:

• executor or administrator of a deceased person’s estate
• attorney under an enduring power of attorney, or a property and affairs lasting power of attorney
• deputy appointed by the Court of Protection.

Paul Saunders made the same suggestion in an article on the subject for PS, the Private Client Section magazine, in May 2019.

Both the briefing note and the article suggest that after the August cut-off date, claim management companies may make claims on behalf of beneficiaries against the fiduciaries involved – on the basis that fiduciaries, and their advisers, would have been expected to investigate whether estates were entitled to compensation. This might also encourage private individuals acting as fiduciaries to challenge their professional advisers if they have not suggested checking any entitlement to a PPI refund.

Who paid PPI?

PPI was primarily linked to personal loans and credit cards, although it was also paid on mortgages. It was often sold on the basis that you got it unless you opted out and many people that paid for PPI were unaware that it had been sold to them. PPI was sold as far back as the 1970s with significant sales being made between 1990 and 2010. Therefore, if a person took out secured or unsecured borrowing between 1990 and 2010, they may have also paid for PPI.

How likely are claims to succeed?

The Financial Conduct Authority (FCA) recently stated that 71% of mis-selling claims are upheld; a figure that has been broadly unchanged since 2012. Many claims are capable of being upheld without onerous evidential requirements. For example, if a person was sold single premium PPI to cover a loan taken to refinance existing borrowing – a fact that can be evidenced by a respondent’s own records – then a mis-selling complaint is very likely to be upheld.

A further gamechanger is the decision in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61, which said that individuals are entitled to compensation if excessive commission was taken. In August 2017, the FCA published guidance stating that compensation should be paid if commission made up over half of the PPI cost, and this was not made clear at the time. Typical commission was apparently 67%. Of the 29% of claims which fail on the basis of mis-selling and fall under the scope of section 140C of the Consumer Credit Act, approximately 90% receive Plevin redress for undisclosed commission.

What to do before the deadline

The absolute deadline of 29 August 2019 for claims to be made means that time is tight.

All the big financial institutions have online forms for individuals to complete. Potential claimants fill in the details that are available. The information required for making an enquiry is minimal:

• name
• address
• known residential addresses.

In the case of a deceased claimant entitled to compensation, you may need a copy of the grant of probate to prove your entitlement to make the claim. (However, this may not be necessary at the initial enquiry stage).

There is no charge for making claims.

It is a straightforward process where you are checking the entitlement of one person with a few possible financial institutions to contact. However, it’s wholly unfeasible for a firm of solicitors to carry out individual checks in relation to all the estates they have administered.

Some companies have negotiated a ‘block’ facility which speeds up the process enormously

Most claim management companies go through the same process as individuals, submitting separate enquiries to each institution. They do not make an up-front charge but deduct a share of any compensation recovered. The maximum they are entitled to take is 20%.

Some companies have negotiated a ‘block’ facility with the big financial institutions which allows them to submit a schedule of names (for open and closed estates) to each institution, which speeds up the process enormously. The firms offering this service include Moon Beever Solicitors and Crystal Legal, an FCA-regulated claims management company which is specialising in the executor PPI market.

Given that the issue of potential liability has been raised, a necessary first step would seem to be to talk to your insurers – however, it is known that some insurers and brokers have already drawn their insureds’ attention to the risks associated with not undertaking steps to address this PPI risk. It is also worth looking at the terms of your retainer to see what limitations you include. Look at your probate questionnaires to see whether you routinely ask about possible legal claims.

You then need to weigh up the logistics of going through your back files against the risk of possible liability.

If you do decide to go through back files, you need to extract details of personal representatives and residuary beneficiaries and, if available, any indications of loans or mortgages. You can then try to contact personal representatives or residuary beneficiaries pointing out that there may be an entitlement to PPI and that claims need to be made before the August cut-off.

You can then ask if they want to make their own enquiries or if they want you to do it on their behalf using a claims management company.

Do you pay inheritance tax on the payment?

Time limits for unpaid tax are dealt with in the Inheritance Tax Act 1984, section 240. Omitted assets fall within section 240 (7). Generally, where the omission was not deliberate, the tax may be recovered up to 20 years after the date of death. But if the omission – and so the loss of tax – was deliberate, there is no time limit for the recovery of the unpaid tax. See the Inheritance Tax Manual at IHTM30462. Clearly here the omission would not be deliberate.