The Financial Services Authority (FSA) is considering a number of tough new measures to clamp down on payment protection insurance (PPI) mis-selling.
A spokesperson told EveryInvestor that the regulator had yet to decide exactly what these measures would entail, but said it was considering all options that fell under its general range of powers.
These include rule changes, public censures, variation of permissions to sell, past business reviews of a firm’s back book of sales, and action against individuals.
The spokesperson added that the FSA would also likely impose more, larger fines on those guilty of PPI mis-selling in the future.
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No success so far
PPI is an insurance policy that is sold alongside any type of loan (mortgage, credit cards or personal) to cover repayments if the borrower becomes unable to pay due to accident, sickness or unemployment.
However, it is also extremely profitable for providers, many of whom resort to ‘mis-selling’ policies to customers for whom it is entirely unsuitable or have no chance of claiming.
The regulator has been pushing for fairer sales practices from the industry for over a year now, but all its previous attempts - including fining guilty firms up to £1 million and launching independent PPI best buy tables - have failed to deter unethical sellers.
“The FSA has set out that, due to the poor findings from its recent work, it is escalating its regulatory intervention [into PPI],” the regulator said in a statement yesterday.
“The FSA will consider the action it will take to deal with ongoing non-compliant sales practices and consider actions to identify and remedy non-compliant past sales, using a range of regulatory powers at its disposal.”
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Consumer groups are unhappy
Many consumer groups have expressed their dismay at the regulator’s failure to tackle the issue thus far.
Peter Vicary-Smith, chief executive of consumer magazine Which?, called on the FSA to “stop dithering and take decisive action” to rectify problems in the PPI market.
“Its weak response to date has done little to help the millions of people who may have been mis-sold policies or to improve sales practices,” he added. “The FSA needs to use its full range of enforcement powers in the interest of consumers.”
The Financial Ombudsman Service also urged the regulator to step up its attempts to tackle PPI earlier this month, claiming that it was handling more than 500 customer complaints a week about the insurance.
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A rock and a hard place
Simeon Linstead, head of personal finance at price comparison site uSwitch.com, claimed that only a heavy-handed approach would successfully stamp out mis-selling. “However, as this FSA review shows, this still isn’t happening,” said Linstead.
But an FSA spokesperson claimed the regulator found itself in a difficult situation, whereby it had to be fair to both the industry and the customer.
“We have in the past been accused by the industry of being too heavy-handed with them, while consumer groups are now accusing us of being too soft,” he said. “In this regard, we find ourselves in a slight bind.”
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A group regulatory effort
Nonetheless, the spokesperson stressed that the FSA was dedicated to stamping out mis-selling in the market, and pointed out that the Competition Commission (CC) was also carrying out an investigation into PPI.
“The CC have different powers to us, for example they can ban products outright,” he said. “Collectively, we have a strong will to rectify the problems in the PPI market.”
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The FSA’s current findings
The FSA’s latest work on PPI included a mystery shopping programme that captured customer experiences of face-to-face branch sales of single premium PPI when sold alongside an unsecured personal loan. The results showed:
- very few customers were told that the cost of the payment protection would be added to the loan as a single premium and that interest would be charged on this amount;
- only half of customers said that they were told about the key limitations and exclusions of the policy - this is fundamental to establishing a customer's need and eligibility; and
- many customers were not told of both the monthly cost and total cost of their PPI - at the worst performing firms very few customers were given adequate information on the cost of their policy.
The FSA will publish a further update on the third phase of its thematic work in early 2009.
If you think you may have been mis-sold a PPI policy, read out guide to reclaiming here.
