The regulator said a time limit for PPI was necessary to prompt consumers into action and encourage them to go directly to lenders rather than using claims management companies which charge a broking fee.
In its consultation paper, the FCA said: “…the perceived open-ended nature of the complaints-led approach to PPI redress appears to contribute to a significant degree of consumer inertia and does not push or incentivise consumers to check if they had PPI, consider if they have any concerns, or progress complaints promptly where dissatisfied.”
Since 2007, 16.5 million complaints have been handled by firms of which 75% have been upheld resulting in more than £21bn of compensation being paid out.
To accompany the two-year deadline, which would begin if the rule to impose a deadline is approved, the regulator proposes to launch a campaign telling the public of the time constraints and new rules and guidance for lenders on how to handle PPI complaints.
The regulator said the outcome of a case heard in the Supreme Court, Plevin versus Paragon Personal Finance, which found Paragon had failed to disclose the large commissions payable from Mrs Plevin’s premiums, had created uncertainty among firms when considering complaints. The Supreme Court ruled that the PPI premium made Paragon’s relationship with Plevin unfair under section 140A of the Consumer Credit Act 1974.
It said firms did not understand the implications of the ruling which created the need for further guidance on how to look at PPI complaints.
The consultation closes on 26 February 2016.