2019 was quite the year for financial scandals. From PPI deadlines and pension mis-selling milestones to Martin Lewis taking on Facebook to tackle fraudulent advertising, the last 12 months has seen its fair share of headlines that have rocked what should be a trustworthy sector.
We delve behind the sensational news stories to shine a spotlight on the facts and issues involved, take a look at what 2019 has taught us and how the issues raised will shape 2020’s financial landscape…
Martin Lewis takes on Facebook
Consumer money guru Martin Lewis took social media giant Facebook to task this year. This was after it came to light that the platform had allowed over 1,000 scam adverts featuring his image to run. The ads, he argued, conned people into parting with money because of the trust they placed in him as a consumer champion.
Mr. Lewis issued high court proceedings for defamation against Zuckerberg and co. but dropped the case after Facebook agreed to install a button allowing consumers to report scam ads. Facebook also agreed to donate £3m to the Citizens Advice Bureau for their UK Scams Action project which began in Spring.
This high profile case, which generated national headlines, highlighted the dodgy and unscrupulous practices that are being used to con ordinary people into parting with their money. We applaud Mr. Lewis for taking this no-nonsense approach to tackle these dodgy tactics.
Pensions mis-selling – the Berkeley Burke scandal
After many years of fighting, October saw embattled Sipp provider, Berkeley Burke, finally drop its appeal case against the FOS due to insufficient funds, and the implications for the industry and legal matters surrounding financial mis-selling are huge.
The provider came under fire for allowing an investment into a green eco oil scheme in Cambodia which later turned out to be a scam. Client Wayne Charlton invested £29,000 of his pension pot into the fraudulent scheme before it went into administration. He sought help from the FOS to get his money back, and the FOS upheld the claim, ruling that Berkeley Burke should compensate the client as a result of its failure to carry out “appropriate due diligence” at the time.
The industry waited with bated breath for the results of the subsequent appeal. The ruling was in favour of the FOS and Mr. Charlton and set a precedent that allowed companies to be taken to task for historically failing to apply appropriate levels of due diligence when looking after a client’s hard-earned money.
Now we know that the decision will be upheld, it will be very difficult for Sipp providers to challenge the FOS in issues regarding due diligence, which is hugely important for British savers.
PPI – the deadline comes and goes
The PPI mis-selling fiasco has arguably been one of the most high-profile scandals of all time for Britain’s financial industry.
Payment Protection Insurance (PPI) is an insurance policy normally sold alongside loans and credit cards. It insures your repayments in case you are unable to make them due to circumstances such as involuntary unemployment or long-term sickness. Between 1990 and 2010, millions of PPI policies were mis-sold to consumers. In fact, the PPI bill for Britain’s banks stands at an estimated £53bn.
The official deadline for claims was 29th August 2019, which was brought in to draw a line under the very costly scandal. But while the UK media concentrated on the last dash for claims, we were working on a groundbreaking case. The Akhtar vs Welcome Financial case opened the doors for further decisions based on precedents set by the Plevin and Doran cases.
The Akhtar case
Ms. Azra Akhtar’s original case against Welcome Financial was to reclaim money for a mis-sold PPI policy and the interest paid on that policy. But, the court also ruled in Miss Akhtar’s favour that the excessive level of undisclosed commission constituted an unfair relationship between her and the lender.
The undisclosed commission on Azra Akhtar’s policy was 85 per cent; almost as much as the policy itself. As a result of the court’s landmark ruling, she received the full PPI premium amount and commissions paid to the broker – seeing Ms. Akhtar win back £3,594.71 – almost double the average £2,004 PPI pay-out.
The Akhtar ruling has opened up fresh complaint opportunities for consumers looking to seek the full amount of undisclosed commission on their PPI policies.
Overall, the PPI scandal – and the Akhtar case – set an important precedent for British consumers, allowing firms to be retroactively punished for unfair historic practices, even if there weren’t any rules in place at the time.
Contingent charging – looming ban divides the industry
When the pensions freedoms were introduced back in 2015, British savers were given the choice to access their pension pots at the age of 55. They could choose to re-invest the money or take a percentage to spend straight away.
Sadly, these freedoms attracted both scammers and unscrupulous firms looking to get their hands onto some large sums of money. Many people – especially those with valuable “defined benefit” pension schemes – have been targeted by firms looking to entice them to invest in a wide variety of schemes.
One of the issues with this, even focusing on genuine financial firms, is contingent charging. This is where financial advisers only get paid if a transfer proceeds. According to the FCA, this creates an obvious conflict of interest and could even become the next mis-selling scandal.
The FCA has been consulting on the issue after it came to light that the harm created by unsuitable pensions transfer advice is estimated at around £2bn each year.
Critics of the proposed ban say that dropping contingent charging may drive good advisers out of the market, reduce choice for pension holders and price people on a lower income out of the market as they would have to pay upfront for advice.
The fact remains that, if hard-working Brits are being advised to switch their guaranteed pension pots to unsuitable and less beneficial schemes that are not in their best interests, it is clear that something needs to be done to address this issue.
The FCA’s consultation closed on 30th October. The industry expects a ban come into play in the first quarter of 2020 as a result.
London Capital & Finance collapses & mini bond ban
In one of the less savoury scandals of 2019, Tunbridge Wells-based firm, London Capital & Finance (LCF) collapsed earlier this year, after it came to light that they had mis-sold unregulated “mini bonds” worth a staggering £236 million to customers. Many of these people were inexperienced, first-time investors, recipients of inheritance money or newly retired and looking to make the most of their pension pots.
Altogether, 11,600 investors were lured in with a slick marketing campaign promising eight per cent interest rates. The investors are likely to have lost most of their money and LCF is now under investigation by the Serious Fraud Office.
As a result of this situation, the FCA has announced a ban on the mass-marketing of these so-called mini bonds, that promise a set income or high returns, but in truth are extremely risky. The ban will come into play in January.
If you have lost money or are concerned that you have been mis-sold a financial product, get in touch today to see how our experienced solicitors can help.