Banks can reduce the amount of compensation paid in payment protection insurance (PPI) claims in order to recover debts owed by those customers, according to a landmark judgment.
The Court of Session found the Royal Bank of Scotland (RBS) was entitled to reduce the discharge of a customer’s trust deed, in RBS v Donnelly [2020] CSOH 106. The decision means banks can limit compensation due where a customer entered into a trust deed having been unable to repay borrowings to the bank, but later makes a PPI claim.
Alison Donnelly borrowed money from RBS between 1997 and 2003 but was unable to repay the sums. She entered into a protected trust deed and appointed an insolvency practitioner as trustee to administer her estate. In December 2013, the trustee paid a first and final dividend of £6,654 to RBS and granted Donnelly’s discharge, leaving £25,344 unpaid. Six weeks later, Donnelly brought a PPI claim which settled for about £11,000, of which RBS paid only £1,000, prompting Donnelly to bring legal action.
Joanne Gillies, contentious insolvency partner at Pinsent Masons, who acted for RBS, said: ‘This is particularly relevant to creditors facing PPI claims from customers who have a history of insolvency.
‘The Court of Session confirmed that the discharge of a trust deed for creditors can be reduced. This finding leaves open the possibility for sums subsequently found due to the debtor to be set off against amounts remaining owed to the creditor.’
She said: ‘The Court has confirmed that failure by a trustee to ingather any existing PPI claims which would be treated as an asset of the estate will be considered a material error upon which any discharge may be reduced, even if the debtor was unaware of the existence of the PPI claim at the time of ingathering the trust assets.’
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