FSA launches PPI crackdown

Whilst noting an improvment in PPI selling standards in its latest review, the FSA has revealed it is subjecting four firms to further investigation, with another 20 cases possibly coming under scrutiny.

The results of the review showed marked improvements in some areas, however treating customers fairly (TCF) still remains an issue - something the FSA has warned it will strengthen its action against.

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.
Clive Briault, FSA managing director of retail markets, said: "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."

The FSA's latest review assessed whether firms had made improvements in five key areas. Welcome improvements were found in two of these: the vast majority of firms are now making it clear to customers that PPI is optional; and firms are now offering cancellation refunds on virtually all single premium PPI policies.

However, little or no progress has been made in the other three areas: 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.

In line with its general approach, the FSA is seeking to increase the level of fines where this is warranted by the nature, seriousness and impact of the breach in question, and by the likely impact on deterrence. Firms have been given due warning of their obligations to treat their customers fairly, both generally and on PPI in particular. Consequently, the FSA will now seek to impose higher fines for firms in the PPI market where standards fall below the required level.

The FSA will carry out further firm visits and mystery shopping, focussing on issues that cut across the PPI market, with its existing rules currently under review.

Responding to the news, Andrew Hagger of moneyfacts.co.uk believes the FSA needs to be more forceful: "We have all been aware of the shortcomings of PPI products and the associated sales process for longer than we care to remember and are disappointed that it appears that we are really still no further forward.

"If the FSA is aware of the providers that are still failing to treat customers fairly, then why is it not sending a warning message to the rest of the industry by naming the offenders it has identified? By entering into a further period of mystery shopping, it means that consumers are still potentially going to be sold unsuitable, overpriced and inflexible products via a flawed sales process.

"Consumers have little faith in the financial services industry as shown by the reaction to the Northern Rock incident, so this lack of action is going to do little to improve the customer perception of our industry.

"It is inevitable that changes need to happen sooner rather than later, so why is the FSA not being more forceful, rather than allowing the institutions to continue to rake in vast profits from the sale of PPI."