Mr S was contacted at home by a claims management company (CMC) who offered to explore whether he had any claims for mis-sold Payment Protection Insurance (PPI). Mr S went on to instruct the CMC in November 2012 who confirmed that he had a potential claim against his bank for mis-sold PPI on a personal loan.
Mr S had previously been declared bankrupt in 2010 and discharged in 2011. He had taken out the personal loan prior to his bankruptcy. If a PPI policy was mis-sold before a person is made bankrupt, any refund of those payments is counted as an asset meaning that it is part of the bankruptcy estate. The official receiver therefore owns any money that results from a claim rather than the discharged bankrupt, Mr S.
When Mr S completed the CMC’s application form, he was asked ‘Are you currently in an IVA/Debt Management/Bankruptcy/Arrears?’ To all of these questions, Mr S answered ‘No.’ The company asked no further questions about this and proceeded to make the claim to Mr S’s bank.
The bank subsequently upheld Mr S’s complaint and agreed to a refund of the PPI payments he had made plus interest, totalling £9801.53. However, the bank then explained to Mr S that as the policy was taken out before he was made bankrupt, the refund would be paid directly to the Insolvency Service. The bank asked him to sign a form enabling them to make payment. Mr S then received two invoices from the CMC for the work completed, amounting to £3528.58, which he was to pay in full within 14 days.
Mr S sought the advice of the Citizen’s Advice Bureau (CAB) who after complaining directly to the company, referred the case to the Legal Ombudsman.
The Legal Ombudsman’s investigation found that:
- The company’s application form suggested that only current insolvency proceedings needed to be disclosed. At the time of completing the form, Mr S was a discharged bankrupt and he therefore truthfully answered the question.
- The correct question should have been ‘Have you ever been in an IVA/Debt Management/ Bankruptcy/Arrears?’ This would have ensured that the company would have realised that Mr S had no right to make a claim against his bank.
- The poor phrasing of the question on the application form left any customer of the company who had previously been made bankrupt open to mistakenly making a claim for mis-sold PPI when they were not entitled to do so. The result of this is that like Mr S, a customer could be left liable to pay substantial fees to the company despite never having obtained a benefit themselves from making the claim. In other words, Mr S was left in a much worse financial position than he would have been had he not made a claim.
The Legal Ombudsman determined that the fees claimed by the CMC were unjustified. It was agreed with the CMC that the fees they were claiming would be waived in full and that payments amounting to £108 that Mr S had already paid towards satisfying the debt were to be refunded.
Learning points for CMCs:
This case highlights to CMCs, the importance of:
- Exercising due skill, care and diligence when accepting a claim.
- Obtaining the necessary information from a prospective customer in order to take proper account of the interests and needs of that particular person.
- Ensuring that where you are relying on written information, the phrasing of the questions is fit for purpose.