The City regulator has taken its strongest action yet against the loan insurance sector, with providers agreeing to review their sales books and pay redress to customers found to have been mis-sold cover.
The measure – which was agreed between the Financial Services Authority and the industry – could lead to refunds for hundreds of thousands of customers who bought payment protection insurance when they took out a personal loan.
Under the agreement, providers that account for more than 40 per cent of face-to-face sales of single-premium unsecured personal loan PPI will review all policies sold since July 2007 and redress customers where mis-selling has been identified.
The review could be extended back to all such sales made since January 2005 if “material detriment” is found, the FSA said.
“It is unacceptable that despite previous warnings about poor sales practices, backed by 22 enforcement cases and significant fines, the PPI sector still needs the FSA to intervene on this,” said Jon Pain, FSA managing director of retail markets.
“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.”
The FSA also announced that it would introduce a new rule requiring companies to reopen some 185,000 previously rejected PPI complaints.
These complaints are to be reassessed against new tougher complaints-handling guidance which the FSA is also seeking to introduce.
The measure was prompted by the bulk rejection of PPI complaints by some companies. The FSA says 60 per cent of PPI complaints are on average rejected by businesses but some companies have rejected almost all.
Of the 16 per cent of customers who persist with their complaints and take their dispute to the Financial Ombudsman Service, more than 80 per cent will have the case found in their favour.
“The outcome of a complaint about a PPI sale should not depend on whether or not the complainant persists past the firm on to the FOS,” Mr Pain said.
Tuesday’s measures follow an agreement reached between the FSA and industry earlier this year for a ban to be placed on the sale of single-premium PPI with unsecured loans.
PPI is designed to meet loan repayments in the event of accident, sickness and unemployment but the sector has been targeted for not only poor selling practices but profiteering, with the Competition Commission setting severe restrictions on the sale of PPI when sold with other credit.
Consumer groups welcomed the measures but said the regulator still had more work to do in the sector.
”This action has taken a long time, and the FSA still needs to tackle PPI sold with credit cards, secured loans and mortgages where people may not have complained,” said Adam Phillips, chairman of the Financial Services Consumer Panel.
“We also still await FSA enforcement action against individuals in some of the bigger players who were responsible for the mis-selling of PPI.”
