Two customers stopped paying for payment protection insurance years before they closed their credit-card accounts. Which event started the six-year period for seeking repayment of undisclosed commission? The Supreme Court looked at the relationship created by each credit agreement. Cancelling an insurance policy did not in itself end that relationship or undo the financial effects of the premiums already paid.
The insurance and the claims
Karen Smith and Derek Burrell each bought payment protection insurance with a Royal Bank of Scotland credit card. The policy was meant to meet card payments in certain circumstances. The bank kept well over half the insurance payments as commission. It did not tell the customers this when they took out the policies.
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A customer could cancel the policy at any time. Ms Smith did so in March 2006 and made her last related payment in April 2006, but her card agreement continued until 2015. Mr Burrell cancelled in March 2008, when he also made his last related payment, but his card agreement continued until 2019. The bank first disclosed the commission through partial payments under a Financial Conduct Authority redress scheme for PPI mis-selling: £529.80 to Ms Smith in February 2018 and £855.07 to Mr Burrell in December 2017. Each payment represented only the commission above 50 per cent of the premiums, plus interest.
In August 2019 both brought small claims under section 140B of the Consumer Credit Act 1974, seeking repayment of all their PPI payments, less the scheme payments, with interest. District Judge Stone upheld Ms Smith’s claim and ordered the bank to pay £1,346.29, including interest, plus costs. A deputy district judge decided the disputed preliminary issues in Mr Burrell’s favour. Both results were upheld on a first appeal. The Court of Appeal, in a judgment of Birss LJ with which Macur and Coulson LJJ agreed, dismissed the claims as out of time. It rejected the bank’s separate transitional-provisions argument.
An unfair relationship
Sections 140A to 140C came into force on 6 April 2007 and replaced a narrower power to reopen an “extortionate credit bargain”. The court does not simply ask whether a contract was fair when it was made. It asks whether the relationship arising out of the credit agreement, alone or taken with a related agreement, is unfair to the debtor. It was accepted that the card agreements were credit agreements and the PPI policies were related agreements.
The decision has two stages. The court first decides whether the relationship is unfair because of a term, the creditor’s use of its rights, or anything else done or not done by or for the creditor before or after the agreement. The creditor must prove that it is not unfair. If unfairness is found, the court has a broad discretion over the remedy, including ordering repayment of money paid under the credit agreement or a related agreement. The purpose is to remove any continuing cause of unfairness and reverse its damaging financial consequences, rather than to apply the stricter analysis used in contract or tort.
The present tense is important. Unless the relationship has ended, the court must decide whether it is unfair at the time of its determination, although it must consider the whole history. If the relationship has ended, section 140A(4) requires the closest equivalent question: whether it was unfair when it ended. In Plevin v Paragon Personal Finance Ltd, the Supreme Court had held that ignorance of very large PPI commissions could make a relationship unfair, and that a creditor is ordinarily responsible where reasonable disclosure would have removed or mitigated that unfairness.
In light of Plevin, the bank accepted that its non-disclosure made each relationship unfair. The district judge found that Ms Smith would not have taken the cover had she known that more than half of her payments would be retained by the bank. The bank did not challenge that finding, nor the repayment ordered, if the court had power to make it. Its arguments were that the claims were too late and that transitional provisions prevented them.
When time started to run
Section 9 of the Limitation Act 1980 imposes a six-year limit on an action to recover money under an enactment. The bank argued that time ran from payment of the premiums. The customers relied on the statutory unfair-relationship remedy and did not need to establish deliberate concealment to bring these claims in time.
Lord Leggatt, with whom Lord Briggs, Lord Kitchin and Lord Hamblen agreed, rejected that argument. While the credit relationship continues, proof that it was unfair at an earlier date does not complete a right to a remedy. The court can intervene only if the relationship is unfair when it makes its determination, so that right cannot arise before then. After the relationship ends, the relevant facts are fixed and later events cannot change the assessment. Time then runs for six years. Here the relevant relationship was the card agreement, which continued after the PPI ended.
Lord Leggatt distinguished limitation from the merits. If a relationship has ceased to be unfair, the claim fails for that reason. Here the effects of the bank’s conduct persisted. The customers had paid premiums without knowing how much the bank retained, and it had not reversed the full financial consequences. The insurance ending did not establish that the ongoing credit relationship had become fair.
Delay can still matter. A court must consider the whole history when deciding whether the relationship was unfair and what relief, if any, to grant. Lord Hodge emphasised that a customer who knew the relevant facts and did nothing for years might receive no remedy.
Agreements made before the new regime
The commencement arrangements gave creditors until 5 April 2008 to bring an existing credit agreement to an end if they wished to avoid the new provisions. Neither card agreement was completed by then, because sums remained or could still become payable for years afterwards. A further restriction applied because the PPI policies were related agreements made before 6 April 2007 and had ceased to operate before 5 April 2008. References to such a related agreement had to be ignored when choosing a remedy under section 140B, but not when assessing fairness under section 140A.
The remaining repayment power covered sums paid by virtue of the credit agreement. The PPI payments met that description. In Ms Smith’s case, the district judge relied on the shared application form, the policy’s dependence on the card agreement, the calculation of premiums from card liabilities, and the addition of premiums to the monthly balance. The bank did not dispute the equivalent point for either customer. Its argument that the provisions were meant to bar all repayment connected with these policies was unsupported by their language. To achieve that result, the bank would have had to complete the card agreements themselves before the transitional period ended.
Verdict: The Court unanimously allowed both customers’ appeals and restored the county court orders. Each claim was brought within six years of the end of the relevant credit agreement. The transitional provisions did not prevent relief.
Source: Smith and another v Royal Bank of Scotland plc [2023] UKSC 34
