As reported by Law360, The Financial Conduct Authority set out draft proposals for U.K. lenders on Wednesday (4 July 2018) on when they should reveal high commissions charged on payment protection insurance after a potentially game-changing court decision that could force banks to pay billions of pounds in additional compensation. The regulator acted after Manchester County Court ruled on June 26 that a personal finance company must repay in its entirety a 76 percent commission, plus interest, to two customers who paid the sum unwittingly.

Judge Richard Pearce rejected guidance from the FCA in 2017 that banks should repay only the part of a commission above a 50 percent threshold — a level the regulator described at the time as unfair for the buyer. Under FCA guidance the firm would have had to repay just 26 percent of the commission, that part above 50 percent. “I have rejected the FCA approach to the calculation of loss,” Judge Pearce said in his June ruling. “It cannot be disputed that the claimants have been kept out of their money.”

The regulator said the new proposals were not connected to the court ruling. But it has asked banks to assess the way they disclose PPI commissions, not just at the point of sale but during the life of the product. If the changes go ahead consumers will be more likely to succeed in their complaints about PPI, even if it was sold long ago, the regulator said.

“This consultation provides guidance on how to ensure fair and consistent outcomes for regular premium PPI complaints," Jonathan Davidson, an executive director of supervision at the FCA, said in a statement.

Banks sold lucrative loan insurance alongside mortgages, loans and credit cards from the late 1990s. But many firms were found to have mis-sold the products to customers who would not qualify for a claim.

The Alliance of Claims Companies, which represents claims firms, believes the Manchester ruling could force U.K. banks, which have already paid out £30 billion ($40 billion) in compensation, to reach even bigger settlements.

“We’re looking certainly at an excess of £20 billion that could be unlocked if this judgment were followed,” Simon Evans, the alliance’s chief executive, told Law360 on Wednesday. “All the commission should be returned to the consumer and not some kept by the bank — that’s what really matters here."

The Manchester court ruled in favor of Christopher and Joanne Doran and against Paragon Personal Finance Ltd. The Dorans borrowed £30,000 from Paragon in 2004 and took out PPI with a premium of £10,500, to be repaid over a decade. Paragon received a commission of £7,985, or 76 per cent of the PPI premium, from the insurer. Judge Pearce ordered Paragon to repay the full commission plus interest — £17,345 in total.

“That was fairly typical," Elis Gomer, a barrister at St John’s Buildings, told Law360. "There were lots of policies sold with that sort of figure."

Gomer believes there could be 10 million similar claims waiting to be settled. Banks may have to pay out £18 billion more than anticipated if the Manchester case sets a national precedent, he said.

Lenders have already set aside £44 billion to cover claims for PPI, approximately five times the cost of staging the London Olympics in 2012, financial services think tank New City Agenda said in February. They now face a difficult decision about how to deal with the ruling. Given the lower standing of the Manchester court the ruling is not binding on other judges. Banks could fight the ruling but, if they lose at a higher court, then they risk setting a precedent.

Paragon Banking Group said it is considering whether to appeal. “The Doran case is one of a handful of legacy cases for Paragon,” a spokeswoman said in an emailed statement. "We believe this decision is at odds with other cases heard recently and does not create a precedent.”

The Dorans are represented by Jonathan Butters of Devereux Chambers. Paragon is represented by Ian Wilson QC and Ian Higgins of 3 Verulam Buildings chambers. The case is Christopher and Joanne Doran v. Paragon Personal Finance Ltd., number D15YM333, in the County Court at Manchester.