LONDON (Reuters) - Britain’s Paragon Banking Group (PARA.L) said it will not appeal a ruling forcing it to pay compensation over the mis-selling of a payment protection insurance (PPI) premium, in a key case in Britain’s costliest consumer scandal.
Paragon’s decision has wide implications for other PPI mis-selling cases because if the lender had appealed to a higher court and lost, that could have set a precedent that could have sparked more lawsuits against banks, lawyers told Reuters.
PPI was an insurance policy sold widely in Britain and designed to protect consumers who suddenly became unable to repay a loan. However, commissions on the policies were often not properly disclosed or were excessive.
Britain’s top lenders have paid out around 34 billion pounds ($45 billion) in compensation to customers mis-sold PPI.
Lloyds Bank alone has so far paid out 18.8 billion pounds in redress, while Barclays and Royal Bank of Scotland (RBS.L) have paid an aggregate 15 billion pounds.
Paragon will not appeal the county court ruling against it in the case of Doran versus Paragon Personal Finance Ltd, a spokesman for Paragon said in response to an inquiry from Reuters.
Paragon’s decision follows behind-the-scenes talks with top British banks on how to avert a wave of new compensation claims linked to commission earned on dubious policies, sources said.
Three senior sources at top British lenders told Reuters that banks had privately discussed with representatives of Paragon Banking Group the advantages of not appealing the key case to a higher court because that would set a legal precedent.
The sources declined to be named because of the sensitivity of the matter.
Paragon rebutted the notion its decision had been influenced by other institutions.
“We have neither sought nor indeed received any pressure or advice regarding this case from any other banking institutions, but in any event, we will not be appealing the decision in Doran,” a spokesman for Paragon said.
The key case involves British couple Christopher and Joanne Doran, who brought a case against Paragon Personal Finance to Manchester County Court in June, after a dispute on the amount of commission they paid out of a 10,500 pounds ($13,844) PPI premium.
The Dorans said they were unaware that 76 percent of that PPI premium was paid to the broker as commission. The judge ruled that the couple would not have bought the policy if the level of commission had been disclosed.
Paragon was ordered to pay back the entire 7,985 pounds commission in a judgment that superseded current Financial Conduct Authority guidance, which states that only commission above 50 percent of the total premium paid is unfair.
Paragon said at the time that it would consider whether to appeal.
Claims management companies at the time hailed the ruling as a hugely significant one, that could open the door to PPI customers demanding much higher compensation payouts.
“Paragon’s worry, if they had appealed, would be that their appeal was dismissed and that Doran would be elevated to a principle which the lower courts were obliged to follow, if the facts were sufficiently similar,” said Elis Gomer, a lawyer with expertise in PPI cases at St John’s Buildings law chambers in Manchester.
“I can understand why there’d be pressure on them not to try it,” Gomer said.
Reporting by Lawrence White, Sinead Cruise and Emma Rumney; Editing by Silvia Aloisi and Susan Fenton