Bank fined for “over-egging” PPI
The Financial Services Authority (FSA) says an investigation in Egg’s sale techniques found “serious failings” in the way it sold PPI alongside credit cards. Customer who took out this controversial type of payment insurance between January 2005 and December 2007 could now be due a refund, and Egg is expected to pay £1.67 million for every 10% of customers who qualify for a refund.
Egg’s sales staff were found to have exaggerated the benefits of PPI in around 40% of telephone sales. They also told people they could take out PPI for a free trial and cancel it at a later date.
Egg will now have to write to affected customers asking them to call a dedicated number if they have any concerns about the policy or the way it was sold. It will also issue compensation where appropriate.
Margaret Cole, director of enforcement at the FSA, says: “Egg used inappropriate sales techniques to try to persuade customers to buy PPI on their credit card even when they asserted they did not want the cover. Egg is likely to pay substantial compensation as a result of this exercise."
Egg says it has worked "constructively" with the FSA to resolve the issue, and has apologised to any customers who have been affected.
In a statement, the online bank said: "We will be contacting all customers impacted by this, giving them the opportunity to review whether the product was or is still suitable for them. A dedicated team of call centre staff will be ready to assist with customer enquiries on this issue."
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.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.