There are a number of things within the mortgage industry which have to be whispered to prevent incurring the wrath of all and sundry. Estate agents are demonised for their ‘shady’ reputation among intermediaries, while no procuration fee will often see pitchforks and torches raised and providers lynched at sunset. From a journalist’s point of view, being told you will have to pay for your own drinks will produce an equally hysterical reaction.
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However, the big bogeyman of the mortgage world over the last 18 months has been payment protection insurance (PPI), with single premium policies the ultimate figure of hate. These products have been castigated into the wilderness as consumer groups and the Financial Services Authority (FSA) came down hard on the failings of the product and the supplementary failings of the seller to ensure best advice.
Things are beginning to settle down though as ‘super-complaints’ and a fair amount of work within the industry has helped to clear the waters and set down a more transparent and compliant sales process. The FSA has also waded in and, in collaboration with the PPI sector, has agreed a future course of action, including a redress scheme for those affected in the past.
‘Nil refund’ nightmare
Much of the FSA’s problem has been with the term ‘nil refund’. Obviously, with a single upfront payment, those wishing to remove themselves from a policy would find they would have to take a substantial financial hit to do so. This could never be argued as giving the customer a fair deal and now the FSA is urging all brokers and providers to ignore such clauses in current and future policies.
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As Clive Briault, managing director of retail markets at the FSA, outlines: “When properly sold, PPI can provide valuable protection. But we have been particularly concerned with so called ‘nil refund terms’ – contract terms that prevent consumers from receiving a partial refund if they cancel a single premium PPI policy for any reason.”
So what now for the PPI industry? Single premium policies have been chastised but as the FSA and the majority of the industry acknowledges, PPI has an important role in the market.
Shane Craig, managing director of Paymentcare.co.uk, explains: “As stated by the FSA, when properly sold, PPI can provide valuable protection. With consumer debt at record levels in the UK, it’s crucial that borrowers protect their ability to maintain their repayments and not lose their trust in the product.”
Negative connotations
However, with all the negative connotations which PPI has gained over the last few months, this could prove to be difficult. Various pieces of research place the number of mortgage intermediaries who regular recommend PPI policies well down on what they were two years ago. The confidence has to be restored, especially as brokers not offering it could end up in hot water with the FSA.
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Rob Griffiths, associate director at the Association of Mortgage Intermediaries (AMI), warns: “Intermediaries have a certain responsibility to their clients so there is no excuse not to sell it. The area is still a clear priority for the FSA, so if you aren’t selling it, you will end up in the firing line.”
One important part of this for many, including AMI, is to remove the stigma surrounding mortgage payment protection insurance (MPPI). There is near unanimity within the industry; including regulator, consumer groups and trade bodies, that MPPI is a safer product and the sales process is much more compliant and transparent than for store card PPI, for example. With a mortgage being the biggest financial commitment for most people, protection against the worst is a sensible move.
For this to happen though, in the eyes of Thomas Reeh, chief executive of blackandwhite.co.uk, there is still a way to go.
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“There is a clear distinction between PPI and MPPI and while the ‘Treating Customers Fairly’ issues have been highlighted, the key thing now is to establish the significant difference between the products. The government’s own targets demand 50 per cent of households being covered by MPPI but at the minute this is around 22 per cent.”
Recovery
So can the PPI industry ever recover? Obviously if the FSA demands brokers offer the product to clients, it cannot disappear. However, with consumers aware of the problems surrounding the sector, what must the industry do to increase sales and confidence?
Reeh believes providers have already taken the first steps. “It seems that de-coupling the policy from the lender’s product is the key step. Independent providers have already begun addressing some of the needs with new products and these are giving clients good deals.”
For Griffiths, the ball is in the broker’s court. “The sector is not tainted forever. As a product, it still has many benefits but it is up to the intermediary firms to ensure it is sold to the highest standards; ensuring transparency and suitability.”
