INCREASING UNCERTAINTY
CONSUMER-LED LITIGATION: AD ADDITIONAL FORM OF REGULATION?

WALKER MORRIS

THE INCREASE IN CONSUMER-LED LITIGATION

The past ten or so years have seen an explosion in consumer-led litigation. For example, the Supreme Court has considered the following:

• whether there is an unfair relationship where a lender keeps 71.% of a premium paid for a policy of payment protection insurance as a commission: Plevin v Paragon Personal Finance Limited
• the meaning of concealment, and its impact on limitation, in the context of claims relating to the sale of payment protection insurance: Potter v Canada Square
• the limitation period for claims under the unfair relationship provisions: Smith & Burrell v Royal Bank of Scotland
• whether parking charges imposed on a customer for overstaying their allocated time were a penalty or unfair: Beavis v ParkingEye.

THERE ARE MORE CASES TO COME

And there are more important cases to come later in 2024 and early 2025 including:

• the pending appeal in the Court of Appeal on what duties (if any) are owed by motor dealers to customers where those dealers receive a commission from the lender for their introduction.
• the pending judicial review in the High Court on the Financial Ombudsman Service’s decision of a complaint made against a motor finance lender relating to the non-disclosure of commission and the commission arrangements. This involves issues over the application of CONC 4.5.2G and Principle 6 to discretionary commission models.
• the pending appeal to the High Court on (a) whether the County Court has exclusive jurisdiction to consider claims under the unfair relationship provisions and (b) whether it is permissible for one claim form to be used to bring a claim for a significant number of unconnected claimants seeking remedies under the unfair relationship provisions.

THE EFFECT OF SUCH CASES ON REGULATION

Firms will always encourage certainty. If the legal position is certain then it allows firms to budget, to plan, to grow and to seek investment. Uncertainty leads to instability. What is often said about the consumer credit regulatory system is that it has three different (and arguably competing) approaches:

• it has mandatory rules (for example, form and content requirements) with often significant sanctions for getting it wrong
• it is principle based (see the Principles for Businesses); and
• it is outcome based (see Consumer Duty).

These three different approaches create uncertainty. But the developments from the Court can also introduce additional uncertainty and effectively introduce regulation which was not part of the framework. For example, Plevin effectively said that the lender should have told the customer about commission even though there was no legal requirement to do so.

The unfair relationship provisions also provide broad grounds for challenging a relationship: the combined effect of Potter and Smith introduce further uncertainty (but firms can use delay as an argument why the relationship is not unfair, or why no remedy should be awarded).

WHAT SHOULD FIRMS DO?

The regulatory regime is both complex and uncertain. The increase in consumer-led litigation has simply increased that level of uncertainty and effectively acts as another form of regulation. Firms should therefore be alive to the risks arising out of consumer-litigation. Firms should approach claims strategically: ensuring that they put their best foot forward to limit the risk of further developments from the Court.