For three years from January 2005 to December 2007 A&L sold approximately 210,000 PPI policies to customers seeking a personal loan at an average price of £1,265, but there was a general failure by advisers to give customers details of the cost of PPI. In addition A&L sought to find reasons to sell PPI without properly considering what customers needed.
A&L did not make it sufficiently clear that PPI was optional and it trained its staff to put pressure on customers where they queried the inclusion of PPI in their quotation or challenged advisers' recommendations.
These failings resulted in unacceptable levels of non-compliant sales and a high risk of unsuitable sales over the three year period.
Margaret Cole, FSA Director of Enforcement, said: "The failings at A&L are the most serious we have found. This is reflected in the record PPI fine. It is very disappointing that after three years of regulation we are still finding serious problems in PPI sales.
"This case shows that we will continue to step up the action we take when firms do not sell PPI properly. Customers should be able to rely on impartial advice based on their individual needs and demands. It is particularly unacceptable for a firm to train its advisers to put pressure on customers when recommending insurance cover which they have not asked for and may not need. Firms cannot rely on paperwork sent out later as an excuse for unclear or misleading statements given on the telephone.
"As we said in our recent update on our PPI work, firms must ensure their PPI sales processes are up to the required standards. They must change their behaviour where necessary and if they are either unwilling or unable to sell this product in a compliant way, making sure that customers are treated fairly, they should not be selling it at all."
A&L has agreed to implement a substantial and comprehensive customer contact programme, overseen by third party accountants. It will write to all customers who took out policies by telephone in conjunction with an unsecured loan between 14 January 2005 and 31 December 2007 prompting them to review their policy against product information sent to them. It will also review any relevant rejected complaints and claims and has committed to pay redress where appropriate.
This remedial action has been taken into account by the FSA and has reduced the level of penalty which would otherwise have been imposed on the firm.
In addition, A&L qualified for a 30% reduction in penalty by settling at an early stage of the FSA's investigation. Were it not for this discount, the FSA would have imposed a financial penalty of £10 million.
Allince and Leicester responded with the following statement:
Alliance & Leicester today confirms that it has agreed a settlement with the Financial Services Authority in relation to advice given over the telephone prior to the sale of Payment Protection Insurance with unsecured Personal Loans between 14 January 2005 and 31 December 2007.
Under the agreement Alliance & Leicester will pay a financial penalty of £7 million.
As part of their investigation the FSA reviewed processes and a sample of phone calls and concluded that there was a risk that customers may have taken out an unsuitable insurance policy. Alliance & Leicester co-operated fully with the FSA's investigation and has improved its systems and processes for telephone contact, and also made changes to its training and monitoring from December 2007.
Alliance & Leicester will be writing to all the customers concerned and will put right any disadvantage identified.
David Bennett Group Chief Executive of Alliance & Leicester comments: "I apologise sincerely for our shortcomings. We will be writing to every customer concerned and will be working with independent accountants and the FSA to ensure that we put right any disadvantage identified.
"Customers can be assured that we are taking this matter very seriously and that we have reviewed and tightened up our processes from December 2007 to ensure that all customers get the right information and advice."
During the period concerned, less than half (41%) of personal loan customers took out Payment Protection Insurance with their loan. Following the telephone call during which the recommendation was made, customers were sent written details of the loan and insurance together with the costs, both with and without PPI cover. Once the customer had made their choice and sent back the signed documents the sale went through. All customers had a 30 day cancellation period in which to change their minds about the insurance cover. Over 80% of claims made during the period were paid.
In an exercise earlier this year, Alliance & Leicester commissioned an independent review by a firm of external accountants to find out more about customers' understanding of their PPI policy and any concerns they may have. From the work carried out, which involved contacting 4,000 customers, the review did not identify ‘any material or systemic issues in respect of the existing book of PPI linked to unsecured personal loans'. Alliance & Leicester will now be contacting all the customers affected by today's announcement, to put right any disadvantage.
What should customers do?
Customers need take no action. We will be writing to all customers who took out Payment Protection Insurance to cover their Personal Loan following a phone call between 14 January 2005 and 31 December 2007. The letter will set out the issues and they will then have the opportunity to raise any concerns. These will be reviewed and where any disadvantage is identified this will be put right. We will be working with a firm of external accountants who will provide independent oversight for the whole process.
