Refunds for mortgage insurance customers
Around one million homeowners who were mis-sold payment protection insurance on their mortgages could claim refunds of £60 million under new measures unveiled by the watchdog.
Following concerns surrounding mortgage payment protection insurance (MPPI) premium hikes and reductions in cover, the Financial Services Authority (FSA) has agreed an industry-wide package of measures to protect consumers. This includes refunds of around £60 million and a freeze on premiums and cover for existing customers for at least the remainder of this year.
MPPI providers will now have to proactively refund increases in premiums, and reverse any reductions in cover, for customers who have experienced these changes to their policy in 2009.
Customers who cancelled their policies because of premium hikes or cover reductions will be offered the option to have their insurance reinstated.
The move follows the FSA ordering banks to reopen 185,000 of rejected complaints about payment protection insurance (PPI) connected to credit cards and personal loans.
The FSA says MPPI remains a good product for many borrowers. Jon Pain, managing director of supervision at the FSA, says: “This clarity will provide the basis for MPPI to remain a valuable option for many mortgage customers who wish to take out protection, alongside the mortgage commitment they are taking on.”
Eligible customers will be contacted by their MPPI providers, and all refunds will be made by the end of June 2010.
Lucy Widenka, personal finance campaigner at Which?, welcomes the move: “We’re pleased that the FSA has taken action against firms who’ve effectively been selling people umbrellas then trying to take them away at the first sign of rain.”
However, she refutes the FSA’s claim that MPPI is a good product. “Just 28% of MPPI premiums collected are paid out in claims – so we’d urge consumers to shop around for a product that best suits their needs, or consider an alternative to MPPI to protect their finances as a whole.”
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.