Of all the acronyms the financial industry has dreamed up, few have caused as many headaches of late as payment protection insurance (PPI).
PPI has continually reared its head for mis-selling, inappropriate and over-priced products and bad quality of advice. Certainly, the Financial Services Authority’s (FSA) latest review into the sector has done little to instill any confidence, with the report laying bare ‘serious failures’ in the sale of single premium PPI alongside secured loans and ‘little to no progress’ in three of the five key areas the FSA looked into.
While improvements were seen in firms making it clear to customers that PPI was optional and offering cancellation refunds on almost all single premium PPI policies, it did not hide the fact that many firms are still failing to treat customers fairly.
Despite the attention given to the sale of PPI, advisers continue to fail to give clear information on the product and its cost or to inform the customer of the extent of their eligibility for PPI cover and what they are covered for. Where advice is given, some customers are still not being told why the recommended PPI policy is suitable for them.
With such discoveries among the 150 firms reviewed, the FSA has chosen to take action against four firms and put a further 20 under potential investigation. Added to this 11 firms have stopped selling PPI permanently or temporarily until their sales process is in order and they retrain staff. Three firms have cancelled their FSA authorisation to sell PPI, while a further four are reviewing their past PPI sales to make sure they are appropriate.
Extreme disappointment
It is little wonder then that Clive Briault, managing director of retail markets at the FSA, has expressed that the regulator is ‘extremely disappointed’ by the findings, in spite of its efforts to set out clear requirements for the sale of PPI. He adds: “The right PPI can provide valuable protection for consumers, but they are entitled to expect that they will be treated fairly by firms when they buy it. They must be told how this product works, what it covers, and how much it costs. At the moment, too many firms are not meeting these requirements.
We will now strengthen our action against firms who fail to treat customers fairly when selling PPI.”
Indeed, the FSA has warned firms to expect higher fines to be imposed on those which do not meet the required standards.
Yet, while the FSA’s report merely adds to the growing evidence against the sale of PPI, why is the financial market still not learning its lesson?
Adviser greed?
For David Copland, deputy managing director of Pink Home Loans, the reason is simple – greed. He explains: “The PPI policies being mis-sold are lump sum policies – it’s an inappropriate product for the majority of consumers. I think the driving factor for selling it is greed because of the commission. These advisers think they can continue until they get caught – it seems to be the attitude out there. I think the findings are a good thing, as people who are still pursuing that model will now be looking over their shoulder.”
Certainly, Simon Burgess, managing director of Britishinsurance.com, believes that since the FSA personally fined Richard Hayes, the chief executive of Hadenglen Home Finance, £49,000 and his firm £133,000 for PPI failings, all chief executives of companies selling PPI should be prepared to meet the same fate should they fail to comply.
Burgess says: “PPI providers and distributors right across the board have refused to make the kind of improvements in their sales practices that the regulator has now been demanding for years.
“Despite huge amounts of media coverage, various market investigations and a wealth of criticism against poor practices in this sector, too many firms have simply ignored the problems and sought to profit from PPI with scant regard for their clients’ needs and circumstances.
“With each bite, the FSA’s teeth are getting sharper and failing to comply is going to be a very expensive business for those found wanting in the future.”
Little faith
However, Andrew Hagger of moneyfacts.co.uk, calls into question the FSA’s continual refusal to send a decisive warning to the PPI sector by naming and shaming the firms involved and adds that the regulator’s proposed next period of mystery shopping will only extend the sale of unsuitable products.
Hagger comments: “Consumers have little faith in the financial services industry as shown by the reaction to the Northern Rock incident, so this lack of action is going to do little to improve the customer perception of our industry.
“It is inevitable that changes need to happen sooner rather than later, so why is the FSA not being more forceful, rather than allowing the institutions to continue to rake in vast profits from the sale of PPI.”
Nevertheless, PPI looks set to continue its trail of bad press, not least through the Competition Commission’s investigation into the sector. Yet, mortgage brokers can take heart from the fact that the negativity seems to largely bypass mortgage payment protection insurance (MPPI). However, with MPPI still involved in the Competition Commission’s investigation, it is a concern that consumers will confuse the two products.
This is an issue the Association of Mortgage Intermediaries (AMI) continues to highlight. Chris Cummings, director-general of AMI, states: “This latest research has confirmed earlier findings that those firms selling regular premium prime mortgage PPI are most likely to meet the expected sales standards. MPPI should now be officially recognised as an entirely different product category to other PPI offerings, and as such, be removed from the Competition Commission’s investigation and benefit from a lower FSA risk rating.”
There is no doubt that the PPI sector has some serious shaping up to do and the effect it is having on MPPI cannot be discounted. All intermediaries selling any form of PPI cover must learn from the FSA’s findings, and quickly, if they have any doubts over selling the policies. Not to do so could cost a firm dearly and prolong PPI’s poor reputation.
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