Over 350,000 loan insurance customers will be offered full refunds following a high street insurance broker being found guilty of mis-selling policies.
Swinton Group has now been fined £770,000 by the financial regulator for the “flawed” way it sold single-premium payment protection insurance (PPI
). This controversial type of insurance product protects payments on loans and other forms of credit, with the premium added to the loan amount and charged interest.
As a result of the fine, Swinton will have to offer over 350,000 PPI customers a full refund.
An investigation by the Financial Services Authority (FSA
) found that Swinton’s sales advisers made assumptions - rather than checks - about customers when selling PPI. Staff also automatically included the cost of insurance in quotes without first checking whether the customer needed or wanted this type of cover.
Customers were also not told that PPI was optional, and the cost was not fully explained to them. The cost of the insurance - between £15 and £20 - was added to the the initial insurance quote and, secondly, Swinton failed to explain that the policy itself only cost £1.21 and the remaining amount was the firm's fee.
This move will affect borrowers who bought PPI from Swindon between December 2006 and March 2008. Complaints and claims from customers previously rejected will also be re-opened, and compensation payments may also be made.
“These were deliberate breaches - Swinton was fully aware it should establish a customer’s need for PPI before recommending it, yet nearly half a million policies were sold to customers who didn’t necessarily require them,” says Margaret Cole, director of retail enforcement and financial crime at the FSA.
Swinton no longer sells PPI.
Earlier this year, the Competition Commission announced an outright ban on banks and building societies selling PPI to borrowers at the same time as a loan. The ban was due to come into force from October next year, but a challenge from Barclays and Lloyds Banking Group
means any ban will be pushed back – or possibly scrapped altogether.
Meanwhile, the FSA recently announced that 185,000 rejected complaints
from people who believe they were mis-sold PPI should be reviewed.
According to Swinton, it brought the issue of mis-sold PPI policies to the FSA's attention in 2007, and contacted customers at the time to advise them that they could receive a refund.
In a written statement, the firm claims very few customers responded. It adds: "Swinton believes that while there may have been breaches of the FSA requirements most customers were content with their decision to buy the policy. The firms also claims that the PPI it sold to customers were cheap compared to policies sold alongside mortgages and loans by other providers."
However, consumer group Which? says Swinton has been let off lightly by the FSA.
"As an insurance broker, Swinton is supposed to give tailored advice to its customers," says Vera Cottrell, personal finance campaigner at Which?. "Too few people are likely to claim back £15 or £20, which would mean Swinton is getting let off lightly. We think the FSA should take action against the senior management responsible for this systematic breach of the rules."
Read Moneywise's guide to claiming a PPI refund - and download a free template complaint letter.
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.