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FSA confirms measures to reform PPI
13-08-2010
Hundreds of thousands of individuals who have been mis-sold payment protection insurance could be offered compensation if companies follow new rules laid out by the Financial Services Authority on Tuesday.
More than 21,400 complaints have been lodged over controversial payment protection insurance since April, according to the Financial Ombudsman Service (FOS), which has received a total of 114,478 complaints over PPI in the last five years.
The latest figures come as the Financial Services Authority (FSA) confirmed reforms to protect consumers in what has become one of the UK’s biggest mis-selling scandals of recent years.
The FSA said the measures – which come into force on December 1 – were designed to “mend a market that has been broken for too long”. It said the measures are designed to ensure customers are treated more fairly when complaining about PPI and should help them to receive better information when buying the product.
The package includes a new handbook to ensure complaints are handled properly and redressed fairly where appropriate and an explanation of when and why companies should analyse their past complaints to identify if there are serious flaws in sales practices that may have affected complainants and even non-complainants.
It also includes an open letter setting out common sales failings to help businesses to identify bad practice.
The city watchdog said companies must use the time between now and 1st December to prepare for implementation such as training staff to a higher level. The FSA will be monitoring firms closely to ensure the new standards are adhered to and will be on the look out for any companies that fail to do so.
The measures are the result of two rounds of consultation that saw significant levels of highly detailed feedback from PPI providers, sellers, trade groups and consumer bodies and the FSA said it had made “some revisions” to its original proposals.
Dan Waters, the FSA’s director of conduct risk, said: “We have worked hard with the industry to pull together a strong package of measures that we hope will allow the industry to draw a line under mistakes that have been made and help them to start selling PPI in a fairer way.
“Since we took over the regulation of PPI we’ve carried out 24 investigations and three thematic reviews, issued warnings, halted the selling of single premium PPI with unsecured personal loans, visited over 200 firms, and handed out some very significant fines. Now, with this package of measures we’re confident we can mend a market that has been broken for too long.
“This remedy is fair to consumers and the industry alike. The onus is now on the industry to ensure it treats all customers fairly. We will be monitoring the implementation of our guidance closely to ensure real change is delivered.”
PPI is designed to cover loan repayments for credit card and other secured debts in the event of accident, sickness or unemployment of the borrower.
However, a record 31,000 complaints about PPI were lodged with the Financial Ombudsman Service in the year to the end of March 2009, with the uphold rate in the consumers’ favour of between 80-90 per cent, considered too high by the Ombudsman.
Consumer groups welcomed the proposals but said they were long overdue. Ray Black, managing director of personal finance website money-minder.com said: “For many years, the selling of PPI has simply been another stage of a sales process that company advisers go through with customers when they are signing them for up a mortgage, loan or credit card. The products are often very expensive in comparison to the benefits provided by longer term income protection and give nowhere near as much security for the purchaser.
“I am delighted to see that at last the FSA has now provided some much needed guidance to help prevent consumers being sold inappropriate PPI in the future. However this action is long overdue.
Peter Vicary-Smith, chief executive at Which? said: “For years, the industry has handled poorly thousands of PPI complaints so it’s important that the FSA is able to force firms to review old cases.
“We want the Government to act swiftly and activate the FSA’s power to force lenders to review rejected PPI cases so consumers whose complaints were wrongly dismissed can get the redress they are due.
The FSA has also taken action against 24 firms and individuals for PPI failings with fines totalling approximately £13m.
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