This is the first time it has taken action against a firm for cold-calling.
The fine also includes CMC's failure to treat its customers fairly by being unable to demonstrate that it gave appropriate pricing information on the accident, sickness and unemployment (ASU) insurance polices it sold. A further failing was its inability to establish and maintain appropriate systems and controls.
An FSA investigation found that 85% of CMC's business was generated by cold-calling potential customers. It also showed that over 97% of ASU insurance polices sold by the firm were on a single premium basis. CMC was unable to demonstrate that it advised its customers of the potentially cheaper monthly option and gave suitable pricing information to them.
Jonathan Phelan, head of retail enforcement at the FSA, said: "Cold-calling potential customers for mortgage business is against our rules and firms operating in the industry should be aware of this. This is the first time we have taken steps against a firm for undertaking this activity and we will continue to monitor the market for instances of cold calling. Management is responsible for ensuring that firms comply with our rules and we will act where we find breaches.
"Firms must be able to demonstrate their reasons for recommending a particular insurance policy and we expect firms to have systems and controls in place to monitor their businesses. The sale of Payment Protection Insurance, of which ASU is a type, is a priority for the FSA due to the potential level of risk to consumers. We take this very seriously."
The regulator has instructed CMC to carry out a past business review to all existing single premium ASU insurance policy customers to ensure they are fully aware of the benefits, cost alternatives, terms and conditions of the product they have and the reasons why they were recommended the single premium plan. The failings were discovered during an FSA visit in November 2005 and the breaches occurred between 4 April and 17 October 2005.
FSA work published in October found that some firms selling Payment Protection Insurance are still failing to treat their customers fairly. Findings showed that many firms are still not giving customers clear information during the sales conversation; customers are still not being made fully aware that there may be parts of the policy under which they cannot claim; and where customers are sold single premium policies, this is not always done with the best interests of the customer in mind.
Firms already fined for PPI failings include Regency Mortgages Corporation Limited and Loans.co.uk Limited.
In determining the level of penalty the FSA has taken into account CMC's financial resources and the fact that the firm will be conducting a past business review. By agreeing to settle at an early stage of the FSA investigation the firm qualified for a 30% discount under the FSA’s Executive Settlement Scheme – without the discount the financial penalty imposed would have been £25,000.
