Rejected PPI complaints to be reopened
Hundreds of thousands of people who believe they were mis-sold payment protection insurance (PPI) could get their money back after the financial watchdog ordered firms to reopen previously rejected complaints.
The move is the latest measure unveiled by the Financial Services Authority (FSA) in an attempt to clean up the PPI sector and protect consumers from high-pressure sales tactics. It has already banned the sale of single-premium PPI alongside unsecured loans.
Now, the FSA has ordered firms to reopen and reassess around 185,000 previously rejected PPI complaints. The watchdog is also issuing new guidance that explains how firms must handle and assess PPI cases.
Plus, the firms that dominated the single-premium unsecured loan PPI market have been ordered to carry out reviews of past sales and redress consumers identified as having been mis-sold policies.
“This is the last chance for the industry to show that it can act fairly, consistently and in the best interest of consumers on PPI,” says Jon Pain, managing director of retail markets at the FSA.
“Where we find questionable practices in sales or complaint handling, firms can expect that we will take action.”
In addition, firms that continue to sell PPI alongside secured loans and credit cards are to be investigated to ensure they are following proper processes.
The FSA says it will carry out targeted assessment of sales practices, and will force firms where there is a potential for mis-selling to carry out proactive reviews.
Despite consumer groups welcoming the action, there remain concerns about redressing PPI customers who have not complained.
Adam Phillips, chairman of the Financial Services Consumer Panel, which represents consumers to the FSA, says: “The selling of PPI has a notorious history. The FSA still needs to tackle PPI sold with credit cards, secured loans and mortgages where people may not have complained.”
In addition, the level of compensation is also a cause for concern. For example, banks may only refund the difference between the PPI policy bought and an alternative regular premium PPI policy, in order to avoid paying full redress to consumers.
Louise Hanson, head of campaigns at Which?, says: "While it’s good to see the FSA make firms review cases they’ve wrongly dismissed, we’re concerned about loopholes. Consumers could still be left paying over the odds or with too little compensation, so the FSA needs to monitor the review process closely."
Which? also wants to see more fines issued against firms with bad complaints handling.
The FSA has taken action against 22 firms over poor PPI sales practices, including Alliance & Leicester and HSBC.
"It’s not enough to tell them to go back and do better the second time round," she explains. "Unless big fines are levied, businesses will keep on unfairly dismissing complaints, safe in the knowledge that if they get caught, all they’ll have to do is go back and look at them again."
The Consumer Panel expects the regulator to take further action, with firms responsible for the mis-selling of PPI hit with huge fines.
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 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.