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DISP App 3.1 Introduction

DISP App 3.1.1
  1. (1)

    1This appendix sets out how a 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).

  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; 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.

DISP App 3.1.2 G

The 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.

DISP App 3.1.3 G

Where 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 he 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 he bought.

DISP App 3.1.4 G

There may also be instances where a firm concludes after investigation that, notwithstanding breaches or failings by the firm, the complainant would nevertheless still have proceeded to buy the payment protection contract he bought.

DISP App 3.1.5 G

In this appendix:

  1. (1)

    "historic interest" means the interest the complainant paid to the firm because a single premium payment protection contract was added to a loan or credit product;

  2. (2)

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

  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.

DISP App 3.2 The assessment of a complaint

DISP App 3.2.1 G

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 there was a breach or failing by the firm.

DISP App 3.2.2 G

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.

DISP App 3.2.3 G

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.

DISP App 3.2.4 G

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.

DISP App 3.2.5 G

If, during the assessment of the complaint, the firm uncovers evidence of a breach or failing not raised in the complaint, the firm should consider those other aspects as if they were part of the complaint.

DISP App 3.2.6 G

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.

DISP App 3.2.7 G

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.

DISP App 3.3 The approach to considering evidence

DISP App 3.3.1 G

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.

DISP App 3.3.2 G

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.

DISP App 3.3.3 G

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.

DISP App 3.3.4 G

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.

DISP App 3.3.5 G

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.

DISP App 3.3.6 G

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

DISP App 3.3.7 G

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.

DISP App 3.3.8 G

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.

DISP App 3.3.9 G

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).

DISP App 3.3.10 G

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.

DISP App 3.3.11 G

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.

DISP App 3.3.12 G

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.

DISP App 3.3.13 G

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

DISP App 3.4 Root cause analysis

DISP App 3.4.1 G

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.

DISP App 3.4.2 G

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 to a breach or failing in the individual case, even if those problems were not referred to specifically by the complainant.

DISP App 3.4.3 G

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.

DISP App 3.5 Re-assessing rejected claims

DISP App 3.5.1 E

Where a complaint is about the sale of a policy, the firm should, as part of its investigation of the complaint, determine whether any claim on that policy was rejected, and if so, whether the complainant may have reasonably expected that the claim would have been paid.

DISP App 3.5.2 G

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.

DISP App 3.6 Determining the effect of a breach or failing

DISP App 3.6.1 E

Where 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.

DISP App 3.6.2 E

In the absence of evidence to the contrary, the firm should presume that the complainant would not have bought the payment protection contract he bought if the sale was substantially flawed, for example where the firm:

  1. (1)

    pressured the complainant into purchasing the payment protection contract; or

  2. (2)

    did not disclose to the complainant, in good time before the sale was concluded, and in a way that was fair, clear and not misleading, that the policy was optional; or

  3. (3)

    made the sale without the complainant's explicit agreement to purchase the policy; or

  4. (4)

    did not disclose to the complainant, in good time before the sale was concluded, and in a way that was fair, clear and not misleading, the significant exclusions and limitations, i.e. those that would tend to affect the decisions of customers generally to buy the policy; or

  5. (5)

    did not, for an advised sale (including where the firm gave advice in a non-advised sales process) take reasonable care to ensure that the policy was suitable for the complainant's demands and needs taking into account all relevant factors, including level of cover, cost, and relevant exclusions, excesses, limitations and conditions; or

  6. (6)

    did not take reasonable steps to ensure the complainant only bought a policy for which he was eligible to claim benefits; or

  7. (7)

    found, while arranging the policy, that parts of the cover did not apply but did not disclose this to the customer, in good time before the sale was concluded, and in a way that was fair, clear and not misleading; or

  8. (8)

    did not disclose to the complainant, in good time before the sale was concluded, and in a way that was fair, clear and not misleading, the total (not just monthly) cost of the policy separately from any other prices (or the basis for calculating it so that the complainant could verify it); or

  9. (9)

    recommended a single premium payment protection contract without taking reasonable steps, where the policy did not have a pro-rata refund, to establish whether there was a prospect that the complainant would repay or refinance the loan before the end of the term; or

  10. (10)

    provided misleading or inaccurate information about the policy to the complainant; or

  11. (11)

    sold the complainant a policy where the total cost of the policy (including any interest paid on the premium) would exceed the benefits payable under the policy (other than benefits payable under life cover); or

  12. (12)

    in a sale of a single premium payment protection contract, failed to disclose to the complainant, in good time before the sale was concluded, and in a way that was fair, clear and not misleading:

    1. (a)

      that the premium would be added to the amount provided under the credit agreement, that interest would be payable on the premium and the amount of that interest; or

    2. (b)

      (if applicable) that the term of the cover was shorter than the term of the credit agreement and the consequences of that mismatch; or

    3. (c)

      (if applicable) that the complainant would not receive a pro-rata refund if the complainant were to repay or refinance the loan or otherwise cancel the single premium policy after the cooling-off period.

DISP App 3.6.3 E

Relevant evidence might include the complainant's demands, needs and intentions at the time of the sale and any other relevant evidence, including any testimony by the complainant about his reasons at the time of the sale for purchasing the payment protection contract.

DISP App 3.7 Approach to redress

General approach to redress: all contract types

DISP App 3.7.1 E

Where the firm concludes in accordance with DISP App 3.6 that the complainant would still have bought the payment protection contract he bought, no redress will be due to the complainant in respect of the identified breach or failing, subject to DISP App 3.7.6 E.

DISP App 3.7.2 E

Where the firm concludes that the complainant would not have bought the payment protection contract he bought, and the firm is not using the alternative approach to redress (set out in DISP App 3.7.7 E to 3.7.15 E) or other appropriate redress (see DISP App 3.8), the firm should, as far as practicable, put the complainant in the position he would have been if he had not bought any payment protection contract.

DISP App 3.7.3 E

In such cases the firm should pay to the complainant a sum equal to the total amount paid by the complainant in respect of the payment protection contract including historic interest where relevant (plus simple interest on that amount). If the complainant has received any rebate, for example if the customer cancelled a single premium payment protection contract before it ran full term and received a refund, the firm may deduct the value of this rebate from the amount otherwise payable to the complainant.

DISP App 3.7.4 E

Additionally, where a single premium was added to a loan:

  1. (1)

    for live policies:

    1. (a)

      subject to DISP App 3.7.5 E, where there remains an outstanding loan balance, the firm should, where possible, arrange for the loan to be restructured (without charge to the complainant but using any applicable cancellation value) with the effect of:

      1. (i)

        removing amounts relating to the payment protection contract (including any interest and charges); and

      2. (ii)

        ensuring the number and amounts of any future repayments (including any interest and charges) are the same as would have applied if the complainant had taken the loan without the payment protection contract; or

    2. (b)

      where the firm is not able to arrange for the loan to be restructured (e.g. because the loan is provided by a separate firm), it should pay the complainant an amount equal to the difference between the actual loan balance and what the loan balance would have been if the payment protection contract (including any interest and charges) had not been added, deducting the current cancellation value. The firm should offer to pay any charges incurred if the complainant uses this amount to reduce his loan balance; and

  2. (2)

    for cancelled policies, the firm should pay the complainant the difference between the actual loan balance at the point of cancellation and what the loan balance would have been if no premium had been added (plus simple interest) minus any applicable cancellation value.

DISP App 3.7.5 E

Where a claim was previously paid on the policy, the firm may deduct this from redress paid in accordance with DISP App 3.7.3 E. If the claim is higher than the amount to be paid under DISP App 3.7.3 E then the firm may also deduct the excess from the amount to be paid under DISP App 3.7.4 E.

DISP App 3.7.6 E

Where the firm concludes that the complainant may have reasonably expected that a rejected claim would have been paid (see DISP App 3.5) then:

  1. (1)

    if the value of the claim exceeds the amount of the redress otherwise payable to the complainant for a breach or failing identified in accordance with this appendix, the firm should pay to the complainant only the value of the claim (and simple interest on it as appropriate); and

  2. (2)

    if the value of the claim is less than the amount of the redress otherwise payable to the complainant for a breach or failing identified in accordance with this appendix, the firm should pay to the complainant the value of that redress.

Alternative approach to redress: single premium policies

DISP App 3.7.7 E

Where the only breach or failing was within DISP App 3.6.2 E (9) and/or DISP App 3.6.2 E (12), and in the absence of evidence to the contrary, the firm may presume that instead of buying the single premium payment protection contract he bought, the complainant would have bought a regular premium payment protection contract.

DISP App 3.7.8 E

If a firm chooses to make this presumption, then it should do so fairly and for all relevant complainants in a relevant category of sale. It should not, for example, only use the approach for those complainants it views as being a lower underwriting risk or those complainants who have cancelled their policies.

DISP App 3.7.9 E

Where the firm presumes that the complainant would have purchased a regular premium payment protection contract, the firm should offer redress that puts the complainant in the position he would have been if he had bought an alternative regular premium payment protection contract.

DISP App 3.7.10 E

The firm should pay to the complainant a sum equal to the amount in DISP App 3.7.3 E less the amount the complainant would have paid for the alternative regular premium payment protection contract.

DISP App 3.7.11 E

The firm should consider whether it is appropriate to deduct the value of any paid claims from the redress.

DISP App 3.7.12 E

Additionally, where a single premium was added to a loan, DISP App 3.7.4 E applies except that in respect of DISP App 3.7.4 E (1)(a) the cancellation value should only be used if the complainant expressly wishes to cancel the policy.

DISP App 3.7.13 E

The firm should, for the purposes of redressing the complaint, use the value of £9 per £100 of benefits payable as the monthly price of the alternative regular premium payment protection contract. For example, if the monthly repayment amount in relation to the loan only is to be £200, the price of the alternative regular premium payment protection contract will be £18.

DISP App 3.7.14 E

Where the firm presumes that the complainant would have purchased a regular premium payment protection contract and if the complainant expressly wishes it, the existing cover should continue until the end of the existing policy term. The complainant should pay the price of the alternative regular premium payment protection contract (at DISP App 3.7.13 E) and should be able to cancel at any time. This pricing does not apply where DISP App 3.7.4 E (1)(b) applies.

DISP App 3.7.15 E

So that the complainant can make the decision on the continuation of cover from an informed position, the firm should:

  1. (1)

    offer to provide details of the existing payment protection contract;

  2. (2)

    inform the complainant that he may be able to find similar cover more cheaply from another provider in the event that he chooses to cancel the policy and take an alternative but remind the complainant that if his circumstances (for example, his health or employment prospects) have changed since the original sale, he may not be eligible for cover under any new policy he buys;

  3. (3)

    make the complainant aware of the changes to the cancellation arrangements if cover continues;

  4. (4)

    explain how the future premium will be collected and the cost of the future cover; and

  5. (5)

    refer the complainant to 1www.moneyadviceservice.org.uk1 as a source of information about a range of alternative payment protection contracts.

DISP App 3.8 Other appropriate redress

DISP App 3.8.1 E

The remedies in DISP App 3.7 are not exhaustive.

DISP App 3.8.2 E

When applying a remedy other than those set out in DISP App 3.7, the firm should satisfy itself that the remedy is appropriate to the matter complained of and is appropriate and fair in the individual circumstances.

DISP App 3.9 Other matters concerning redress

DISP App 3.9.1 G

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.

DISP App 3.9.2 G

In assessing redress, the firm should consider whether there are any other further losses that flow from its breach or failing that were reasonably foreseeable as a consequence of the firm's breach or failing, 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.

DISP App 3.9.3 G

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

DISP App 3.9.4 G

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.

DISP App 3.10 Application: evidential provisions

DISP App 3.10.1 E

The evidential provisions in this appendix apply in relation to complaints about sales that took place on or after 14 January 2005.

DISP App 3.10.2 G

For complaints about sales that took place prior to 14 January 2005, a firm should take account of the evidential provisions in this appendix as if they were guidance.

DISP App 3.10.3 E

Contravention of an evidential provision in this appendix may be relied upon as tending to establish contravention of DISP 1.4.1 R.