The FSA today pledges to step up its campaign to smoke out firms failing to meet its requirements for selling Payment Protection Insurance (PPI).
It says it will look to increase the size of fines for firms deemed to be failing to treat its customers fairly and start conducting more mystery shopping exercises.
It follows the publication of the regulator’s latest review of PPI selling standards which found “many firms” have failed to improve their sales practices.
However, the report did find areas of improvement among some firms, notably in two of its five key requirements: telling customers PPI is optional; and offering cancellation refunds on single premium PPI policies.
Clive Briault, FSA managing director of retail markets, says: “We have, on a number of occasions, set out clearly our requirements for the selling of PPI.
“While some progress has been made by the industry, we are extremely disappointed that some firms have still made little progress in improving their sales practices.
“The right PPI can provide valuable protection for consumers, but they are entitled to expect that they will be treated fairly by firms when they buy it.
“They must be told how this product works, what it covers, and how much it costs. At the moment, too many firms are not meeting these requirements.
“We will now strengthen our action against firms who fail to treat customers fairly when selling PPI.”
John Howard, chairman of the Financial Services Consumer Panel (FSCP) says the root of the problem is that PPI is still viewed by some as “an easy sale with big commissions”.
These results are very disappointing,” he says. “The industry has been warned about problems in the sale of PPI before, following previous FSA investigations in this area.
“But it would seem that some parts of the industry continue to see PPI as an easy sale with big commissions producing substantial profits which outweigh the regulatory risks.
“We welcome the FSA's message in the report today that they will take enforcement action, using mystery shopping results as well as other evidence, and will seek to increase the size of fines.
"I suspect there are major high street names at fault here and if that is the case I would expect to see them at the top of the FSA’s list.
“We also await the findings of the Competition Commission on PPI – due to publish an initial paper later this year – to see if there are fundamental problems with the structure of this market.”
The FSA's latest review assessed whether firms had made improvements in five key areas.
It found many firms are still not giving customers clear information about the product and what it will cost; not telling them the extent to which they are eligible for PPI cover and what they are covered for; and not telling them why, where advice is given, the recommended PPI policy meets their demands and needs.
The latest review looked at 150 firms, including mystery shopping of personal loan providers.
As a result four firms will be subject to further investigation and a further 20 cases may also be investigated.
In addition, the FSA says the following action has already been taken as a result of the FSA visits:
- Eleven firms have stopped selling PPI either permanently or temporarily until such time as they get their sales processes in order and/or retrain staff;
- Three firms have cancelled their FSA authorisation to sell PPI; and
- Four large firms are reviewing past PPI sales to ensure they were appropriate.
The FSA is planning to introduce in spring 2008 a new comparative information table for PPI on its consumer website.
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Have your say:
“Surely the FSA would not have to point the barrel of its gun very far? The banks have been one of the major mis-sellers of PPI protection! Their process is totally inadequate toward understanding client needs and failing to establish what a client may already have in existence that would prevent PPI in paying out.
Yet the FSA champions the banks as its preferred advice channel for our clients!
I have been in financial services for over 20 years, firstly as a tied adviser (manager) with life offices, then for the past seven years as an IFA. The industry has always been its own worst enemy. Past regulators believed the cause of bad advice was initially from tied representatives, many on structured incomes, and now they believe that the cause for bad advice is IFAs and, in particular, this demon word ‘commission’.
The RDR review in my opinion does nothing to satisfy what is the main missing ingredient and that advisers, whether they be tied or IFA, offering a structured planned route for their clients to achieve their objectives. We offer both the fee and comssion route to our clients with the majority it is fair to say opting for us to be remunerated by commission. I do not see the problem providing the advice is one and the same no matter which avenue the client has chosen.
In all cultures there are established rules and protocols that are to be observed and obeyed throughout our daily lives. People go on to break these rules with great regularity and frequency with the police, whom are charged with the responsibility of ensuring those who break these laws are apprehended and suitable punished to help deter others failing miserably!
Is it not the case that the same could be said of the FSA!
The RDR review states in my opinion the structure whereby the FSA can offload its duties as an officer of enforcement to the banks whom have been found guilty of mis-selling on so many occassions: bank charges, PPI, Pensions, FSAVC’s, the list is endless. But this is where the FSA want the consumer to go for ‘advice’?” Steve Holloway, partner at The Winchester ConsultancyIFAonline
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