Alliance & Leicester in record £7 million fine
Alliance & Leicester has been fined a record £7 million by the City watchdog for putting pressure on loan borrowers to take out payment protection insurance (PPI).
The Financial Services Authority (FSA) says that for three years to December 2007, the banking giant sold around 210,000 PPI policies to customers alongside personal loans at an average price of £1,265.
However, it says Alliance & Leicester failed to give customers information about the true cost of this insurance, and sold policies without considering what customers really needed.
Alliance & Leicester is currently in the middle of being acquired by Santander, the Spanish owner of Abbey.
In a press statement, the FSA says: "A&L did not make it sufficiently clear that PPI was optional and it trained its staff to put pressure on customers where they queried the inclusion of PPI in their quotation or challenged advisers’ recommendations."
The FSA says the "serious failings" at Alliance & Leicester are the most most serious it has found to date, a fact which is reflected in the record PPI fine.
Margaret Cole, director of enforcement at the FSA, adds: “Customers should be able to rely on impartial advice based on their individual needs and demands. It is particularly unacceptable for a firm to train its advisers to put pressure on customers when recommending insurance cover which they have not asked for and may not need.
"[Firms] must change their behaviour where necessary and if they are either unwilling or unable to sell this product in a compliant way, making sure that customers are treated fairly, they should not be selling it at all.”
Alliance & Leicester's fine would have been even greater - £10 million - had it not already taken action to changes its PPI sales techniques.
It has also agreed to write to all customers who took out policies by telephone alongside an unsecured loan between 14 January 2005 and 31 December 2007 prompting them to review their policy.
Unsecured loans mean the loan is not secured on any asset you already own, such as a house, car or other assets and so is a riskier prospect for the lender. Therefore, they usually come with higher interest rates than their secured counterparts, are less flexible and levy high redemption penalties. Most “personal” loans are unsecured.
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.
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.