The FSA's new rules, announced on 25th May, require firms to warn endowment policyholders that they have three years from their first red letter to complain, and to issue that warning at least six months before the date when the claim would be time barred. The FSA suggest this warning should be contained in the re-projection letters. Firms can only take time bar defences if these procedures are followed.
For product providers, the operation of the rule change will be straightforward. The time bar warning can indeed be included in the reprojection letters. However, Jonathan Davies, Partner, of RPC explains that the position is different for endowment mortgages where an IFA has advised.
Says Jonathan Davies: “Where an IFA advised on the case, responsibility for any complaint falls to the IFA, not the product provider. It is the product provider which issues the reprojection letter. Many IFA's do not even know when such reprojection letters are issued. Therefore the IFA cannot issue the warning the FSA's new rules require.”
“Some product providers send copies of their reprojection letters to IFA's but if an IFA then wrote to his client warning of the time limit it would be difficult for this letter not to be an invitation to make a claim which professional indemnity insurers would not welcome.”
The new ABI Code of Practice (also published on 25th May) provides further details. Product providers who do not take time bar defences will not be required to include the time limit warning in their re-preojection letters. However, if an endowment was sold by an IFA, product providers will be required to seek the IFAs agreement that they also do not wish to take time limit points.
Jonathan Davies says this raises the serious concern that some IFAs will not be consulted and may therefore be prevented from defending claims on time limit grounds because the necessary information will be excluded from the re-projection letters.
Adds Jonathan Davies: “The FSA has introduced this rule change under emergency powers without consultation. The new rules come into force on 1st June"
