e’re only about three quarters through January so I still feel able to write about New Year’s resolutions or ‘new brooms sweeping clean’ or ‘out with old, in with the new’. Financial services, and the mortgage industry in particular, move at a ferocious pace but there are still market issues that stay on the agenda for a long time. For instance, there is no ‘out with the focus on payment protection insurance (PPI) market, in with something else’ from the FSA.
I’m well aware that there will be cries of: ‘He’s not banging on about PPI again, is he?’ right across the country. Unfortunately, yes I am. 2007 has continued where 2006 left off, at least where PPI is concerned. It continues to be a sector that blinks brightly and rapidly on both the FSA’s and OFT’s radar.
While we wait to see if the sector is going to be referred to the Competition Commission – a decision we believe is due at the end of this month – earlier this month the FSA announced details of its next phase of work (Phase three) aimed at improving PPI sales standards. And this is no small project either, with this round of work being trumpeted as ‘one of the largest programmes of thematic work the FSA has undertaken’. Firms are clearly being warned of the regulator’s intent with this statement.
This new phase will again include mystery shopping and also follow-up work with ‘firms whose practices were earlier identified as deficient’. Firms who have not been visited previously can also expect an FSA visit. By June this year, when this phase of work is due to be completed, FSA will have visited over 200 PPI firms in two years.
You will be aware of the recent announcements and fines issued against firms in relation to their advice on, and sales of, PPI policies. 10 firms have been referred to enforcement with outcomes published in relation to six of these. We have been promised more public news on FSA’s outstanding PPI enforcement investigations ‘in due course’ – which I take to mean ‘pretty damn soon’. You will be unsurprised to learn that we are not expecting the FSA to deliver a light smack on the wrists to these firms. Large fines have been issued previously and we have no reason to expect anything else for other firms being put through the process. Intermediary firms should take heed and ensure their processes are reviewed and compliant with FSA rules.
FSA have four elements to its new programme of PPI work:
Visits to firms.
Enforcement action where appropriate.
Information aimed at consumers.
A review of current FSA rules on PPI. In its press release on this work, FSA say it ‘is not convinced that its current rules relating to PPI are delivering the protections that customers deserve’ – consideration of these potential changes are taking place under the ICOB effectiveness review – we expect an update on this programme of work very shortly.
FSA are testing industry progress to ensure that customers:
Are told that PPI is optional, where this is the case;
Receive clear information about the product and what it will cost;
Are given the assistance they need to be clear about what they are eligible for under the policy and what the exclusions are;
Are, where advice is given, recommended a policy that meets their needs; and
Are offered a fair refund if they cancel their policy.
In February FSA are also going to launch a ‘two-month campaign targeting consumers in the market for insurance products including PPI’. The FSA’s advice to consumers is:
PPI is almost always optional and you should not be refused credit if you decide not to buy it;
Consider your own personal financial circumstances, including any other insurance cover or savings you already have, when deciding whether you need it;
If you do need it, make sure you are clear about what you will be covered for and what won't be covered – for example any exclusions relating to the nature of your employment or your medical history;
c Ask before buying if you are uncertain;
Remember, you don't have to take out PPI from the same place you get your loan from – shop around to compare benefits and prices;
Check what you will get back if you cancel the policy or repay the loan early.
The results of this round of thematic work will be published in Q3 2007. This round of work is clearly a signal of the FSA’s serious intent on raising PPI sales standards. AMI members wishing to review their PPI sales practices should use our factsheet No. 29 ‘PPI Checklist. Further information can also be found in factsheet No. 38 ‘Payment & Income Protection briefing’. Both factsheets can be downloaded from:
http://www.a-m-i.org.uk/closed/cug/publications.asp
As this is my first column of 2007 in Mortgage Introducer, may I wish all readers a very happy and prosperous 2007.
