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By Steve Slater
LONDON, July 30 (Reuters) - British banks and financialfirms could face a compensation bill of up to 33 billion pounds($52 billion) for not being transparent about commission chargesif a landmark legal ruling is applied broadly across theindustry, a research firm has estimated.
The study from Autonomous, chaired by a former financialservices minister, follows the Supreme Court decision that aloans company broke consumer protection rules by failing to tella customer a payment protection insurance (PPI) policy theybought included a big commission charge.
Autonomous said if regulators decide the ruling should beapplied to PPI sales across the industry - and even sales ofother financial products - firms could face a compensation billtotalling about 33 billion pounds in a "worst-case" scenario.
That would surpass the mammoth compensation costs Britishbanks already face for mis-selling PPI; they have set aside morethan 26 billion pounds, in the costliest scandal to hit thefinancial sector to date, and customers continue to make claims.
"In essence this ruling appears to open up a new angle forPPI mis-selling claims, based on commission payment (as opposedto the PPI policy)," Autonomous analysts said, according to acopy of the research seen by Reuters.
"If applied to other products (e.g. store cards and autofinance), this case could lead to a whole new wave of consumerclaims for the UK banks, with a bill which could be even higherthan the current PPI tally," the study said.
Autonomous, which rarely distributes its research to themedia, declined to provide the report to Reuters or providecomment for this article.
Both Barclays and Royal Bank of Scotland have warned in the last two days they could suffer "material"losses from the ruling, the first time banks have acknowledgedrisks to their results.
'REAL RISK'
PPI policies were supposed to protect borrowers againstsickness or redundancy, but were often sold to those who wouldhave been ineligible to claim. Banks made billions of poundsfrom the policies, which were often aggressively sold.
The court ruling in November found that Paragon PersonalFinance breached the Consumer Credit Act by failing to tell acustomer their policy included a big commission paid to Paragonand a broker. The case was brought by Susan Plevin over a policysold in 2006, and has become known as the Plevin case.
The Financial Conduct Authority (FCA) has said it plans togives its view this summer on the impact of the decision oncomplaints about PPI.
If the regulator says that ruling should be applied to PPIand other sales of financial products it could allow Britons togo back over millions of policies and seek compensation.
"There is, in our view, a small but very real risk that theimplications of the Plevin judgement could quickly snowball intoa much bigger issue, beyond PPI," Autonomous said in the notedated July 27 and written by banks analysts Christopher Cant andManus Costello.
"This implies a possible worst case cost to the industry onpoint of sale finance of about 33.5 billion pounds," added theresearch firm, which is chaired by Paul Myners.
It said if only 50 percent of customers claimed, in linewith response rates on PPI, the cost would be 17 billion pounds.
Both Barclays and RBS said they were monitoringdevelopments.
"At this stage, as there remains considerable uncertaintyregarding the application of the Plevin decision (including topreviously settled cases), it is not practicable reliably toestimate the potential impact on RBS, which may be material,"RBS said on Thursday.
($1 = 0.6396 pounds)
(Editing by Sinead Cruise and Pravin Char)
