The Financial Services Authority (FSA) has called on firms to take urgent action to ensure their selling practices for payment protection insurance (PPI) are in line with regulatory requirements.
The call comes after the FSA’s programme of visits to firms and mystery shopping exercises uncovered poor selling practices and a lack of proper compliance controls among a sample of firms.
The FSA says firms which sell PPI and the insurers who provide the policies will be receiving detailed feedback on its findings and will need to address any problems raised. Some more serious cases will be referred for further investigation with a view to possible enforcement action.
The regulator plans to undertake a second round of thematic work early next financial year to check that compliance levels have improved. It will also be meeting with relevant trade associations to seek their commitment to changing and improving the market.
Clive Briault, FSA managing director for retail markets, says: “When properly structured, explained and sold, payment protection insurance can provide worthwhile cover for consumers against unexpected changes in their personal circumstances. We were therefore pleased to see that sales of regular premium PPI sold with prime mortgages are generally complaint.”
But, compliance standards in other areas of the market, particularly single premium PPI business, are generally weak and those firms “must take urgent action” to address the problems, Briault adds.
He says weak compliance standards pose serious risks to consumers because of the poor disclosure of product and price details, the possibility that customers may not be eligible to claim against their policies, and the fact consumers may not be aware that they may receive little money back if they cancel the policies early.
The FSA identified the sale of PPI with credit arrangements as a priority ahead of taking on responsibility for general insurance regulation in January this year and carried out a series of supervisory visits to firms and mystery shopping exercises to assess compliance in the summer.
Of the 45 firms examined, 30 were selling PPI with revolving credit, unsecured loans, sub-prime mortgages and secured loans.
Among these 30 firms, the FSA found:
Stephen Hadrill, director general of the Association of British Insurers (ABI), says the association will look closely at the particular concerns highlighted by the FSA and will discuss improvements.
Hadrill adds: “In particular, we want to ‘raise the bar’ to ensure there is a good basic policy standard that all customers can rely on. We are also working on developing better communication between insurers, lenders and customers to ensure repayment is not sought whilst claims are being processed.”
Ian Mullen, chief executive of the British Bankers’ Association (BBA), says treating customers fairly is something upon which banks place great importance, but he adds: “Naturally, where these checks are not working, they need to be addressed accordingly.
“We shall be pleased to continue talks with the FSA on how it feels that current selling practices could be improved, although we cannot of course compromise competition between the different providers.”
Paul Smee, chief executive of APACS, adds: “We would draw attention to the fact that the Banking Code requires PPI providers to act fairly and reasonably in all their dealings with consumers. We always advise consumers to carefully consider their options before taking out any product.”
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