Against the backdrop of significant losses sustained by banks as a result of the PPI scandal, a recent decision of the English Supreme Court may lead to a new surge in claims.
In Smith and another v Royal Bank of Scotland [2023] UKSC 34, the Supreme Court ruled on when the time-limit begins to run for the purposes of section 140A-C of the Consumer Credit Act 1974 (CCA). The Supreme Court has ruled that the limitation period begins to run from the date the underlying credit agreement ends rather than either the date on which the PPI policy ends or the date on which the last payment towards the PPI policy was made.
In this appeal it was not in question whether the relationship between the creditor (RBS) and the debtor (Ms Smith and Mr Burrell) was unfair but rather whether the time limit for Appellants to pursue their claim had expired.
Background and summary of facts
This was a joint appeal by two individuals, Ms Karen Smith and Mr Derek Burrell. Whilst the details of their initial claims in the county court differ, the general facts and timeline of these two cases were similar in all respects for the purposes of the appeal.
Both Ms Smith and Mr Burrell had credit card agreements with RBS and were sold Payment Protection Insurance (PPI) at the time of taking out the agreements. RBS informed them in 2018 and 2017 respectively that it had received commission following the sale of the PPI and offered redress pursuant to the Financial Conduct Authority PPI mis-selling scheme. In each case, the commission RBS received was in excess of 50% of the premiums the Claimant's had paid. The exact amount paid in commission is still unknown.
Ms Smith had terminated her PPI policy in 2006 and Mr Burrell terminated his in 2008. However, their credit card agreements remained live until 2015 and 2019 respectively.
In 2019, Ms Smith and Mr Burrell issued claims against RBS. Each sought repayment of all the money they paid towards the PPI policy (less any redress already paid) plus interest under s.140B of the CCA 1974. These claims were issued more than 10 years after the PPI policy ended. RBS argued that both claims were time-barred because the claims were issued more than 6 years after the PPI policy was terminated.
Both these claims succeeded before the district judge and on appeal in the county court. However, these decisions were overturned when the Court of Appeal ruled that limitation began to run from the date the PPI policy ended and/or the last payment towards the PPI policy was made. The reasoning being that the unfair relationship (i.e. the PPI policy) had ended.
Ms Smith and Mr Burrell appealed against the Court of Appeal decision. Their position was that their relationships with RBS did not end until the credit agreement was completed, therefore limitation began to run from the date the credit agreement ended.
Decision
The Supreme Court unanimously allowed the appeal and reinstated the county court orders. The court's judgment was clear and emphatic: "The period of limitation begins to run only when the relationship ends and expires after six years. Each of these claims was brought within that period. So the claims are not time-barred."
Giving the lead judgment, Lord Leggatt further stated he could not accept "that the relationship between the bank and Ms Smith ceased to be unfair in April 2006," when her PPI policy ended. This is because "her loss was exacerbated because she did not have the use of the money during this period. The relationship was therefore still unfair to her at the time" the agreement was terminated in 2015. Her claim was rightfully issued within the time-limit.
Takeaways
Concerns have been raised that the decision will result in a spike in PPI claims, as debtors who still have or had live agreements or terminated their agreements less than 6 years ago could pursue claims in relation to a PPI policy that ceased to exist many years ago. For those consumers who failed to make a claim before the FCA PPI mis-selling redress scheme ended in August 2019, this decision therefore offers a potential lifeline.
The Supreme Court did make it clear, however, that the court still had discretion as to whether to award any remedy. In a warning to potential claimants Lord Hodge stated, "If a debtor sits on his or her hands in knowledge of the relevant facts, it would be, as Lord Leggatt states, inconceivable that a court would think it just to make an order under section 140B of the 1974 Act." Therefore, debtors must act promptly to pursue their claims where they have knowledge of the unfair relationship between them and the creditor.
Smith & another v RBS follows the recent trend of strengthened consumer protections. Once a relationship is unfair, it is deemed unfair for its duration. Therefore, simply remedying the unfair act may not be sufficient in demonstrating the ongoing relationship later became fair. This is a consideration for creditors to keep in mind, especially with the introduction of the FCA 'consumer duty' earlier this year in July 2023 requiring firms to put their customers’ needs first. Section 140A-C is wide reaching. That coupled with the FCA consumer duty places a great burden on banks.
It is yet to be seen what the Supreme Courts position is where a debtor brings a claim under s.140A more than 6 years after the agreement has ended but seeks to rely on the argument there was deliberate concealment of information to pursue their claim. Judgment in this respect is awaited from the Supreme Court in the appeal of Potter v Canada Square Operations Ltd [2021] EWCA Civ 339.
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