Firm fined over bad PPI sales
Mutual society Liverpool Victoria has been fined a whopping £840,000 by the Financial Services Authority (FSA) for putting pressure on customers to take out single premium payment protection insurance (PPI).
The firm was hit with the fine for adding single premium PPI to personal loans sold over the phone between 2005 and 2007 without asking customers’ permission. When customers discovered the cost of PPI had been added and objected, the FSA says Liverpool Victoria put pressure on them to take out the insurance product.
The FSA also slams the firm for failing to explain that the cost of the single premium PPI was added to the loan and that as a result customers paid additional interest on the PPI premium for the life of the loan.
Out of 97 telephone calls reviewed by the FSA, 60% were found to break its rules on the way PPI is sold.
Liverpool Victoria is the eighth firm to be fined by the FSA over PPI. The original fine levied at Liverpool Victoria was £1.2 million, but because it settled at an early state it qualified for a 30% discount. However, its fine is still the second largest levied for PPI failings, with HFC Bank receiving the biggest fine of £1 million.
Margaret Cole, director of enforcement at the FSA, says Liverpool Victoria’s sales processes were “flawed” and left customers at risk.
She adds: "When customers phone for a quote, it is totally unacceptable for firms to add on the cost of insurance which the customer has not asked for. Many customers make their decisions when speaking to sales staff. If those conversations are unclear or misleading it will be no defense for firms to say that full details were included in paperwork, which customers received later.”
Customers affected by the mis-selling will be refunded the interest they paid on their PPI premiums automatically, meaning there is no need for them to write to the firm or apply for a refund.
All PPI customers will also be contacted and offered full redress where appropriate.
A spokeswoman for Liverpool Victoria says it is sorry for its "past shortcomings" in the PPI sales process.
She adds the FSA's findings cover around 14,500 policies, of which 75% were sold prior to July 2006: "The practices of automatically adding PPI to the quotation and not clarifying the full costs were rectified by July 2006. With around 50% of LVBS personal loans sold over this period, customers did not take up a PPI policy."
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
An organisation owned by its members and managed for their benefit rather than the benefit of shareholders. Mutual societies include building societies, industrial and provident societies, such as co-operatives, credit unions and friendly societies. As they don’t have to pay dividends to shareholders, mutual societies generally offer lower mortgage rates and higher savings rates to their customers than banks.
The practice of a dishonest salesperson misrepresenting or misleading an investor about the characteristics of a product or service. For example, selling a person with no dependants a whole-of-life policy. There have been notable mis-selling scandals in the past, including endowment policies tied to mortgages, employees persuaded to leave final salary pensions in favour of money purchase pensions (which paid large commissions to salespeople) and payment protection insurance. There is no legal definition of mis-selling; rather the Financial Services Authority (FSA) issues clarifying guidelines and hopes companies comply with them.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.