Dissatisfied with a Financial Services Compensation Scheme (FSCS) ruling, the client referred its ruling to the High Court.
The FSCS acted “irrationally in awarding too little compensation,” said the Court and quashed the Scheme’s original decision after the customer received unsuitable mortgage advice.
Legal firm Reynolds Porter Chamberlain (RPC) said this will have broader implications for the value of claims against IFAs and mortgage brokers and in some cases involving unregulated and regulated elements will inflate compensation pay outs.
The case, Emptage vs Financial Services Compensation Scheme, involved a client, Ms Emptage, who on the advice of an IFA remortgaged her property with a £110,000 interest-only mortgage and invested the proceeds in a £70,000 holiday home in Spain, which was also the intended capital repayment vehicle.
The Spanish property is now worthless and Emptage has been left with a mortgage of £110,000 and no way to pay it. The IFA firm is no longer solvent, so with no Professional indemnity to cover the claim, was directed to the FSCS’s as scheme of last resort.
Originally, the FSCS concluded only the regulated mortgage advice, not the unregulated property purchase were eligible for redress, which led to the £12,000 award. The Court ruled this was “irrational” saying the redress should relate to the “package of advice” and without the advice she would have paid off her £17,000 repayment mortgage by 2015.
RPC partner, Robert Morris, said the FSCS is likely to have to change its internal procedures which were likely to have capped previous pay outs.
“If it stands, this decision will have an impact beyond future FSCS compensation payments and the increased levies this might have for firms,” said RPC.
The principles involved are likely to apply equally to civil claims or FOS complaints made against mortgage advisers in respect of mortgage advice involving both regulated and unregulated elements and could result in increased quantum or redress payments, said RPC.
In a statement, the FSCS said: “The Financial Services Compensation Scheme determines each claim on its own merits according to the available information and by the application of the rules that are set for us. We are now considering our position following the judgement and cannot comment further at this stage.”
The FSCS has requested permission to appeal against the decision, but won’t confirm it will go ahead at this time.
