Loan insurance providers are urging the Financial Services Authority to drop plans to force them to reopen some 185,000 previously rejected customer complaints.
The FSA said in September that too many complaints dismissed by providers were later overturned by the Financial Ombudsman’s Service in the customer’s favour. The watchdog said it planned to introduce new rules requiring providers to reopen tens of thousands of rejected complaints dating back to January 2005.
The rejected complaints would then be reassessed against new guidance including measures based on ‘fair assessment’ and ‘payment of redress’.
But some providers, who were given just one month to comment on the FSA’s plans, believe the regulator is rushing through its proposals and would be wrong to apply a new rule retrospectively.
“We need to ensure that any new regulations in this area are fair to all parties, and do not – for example – require the application of new rules to past complaints,” said the Finance Leasing Association, the trade body for the asset finance, consumer finance and motor finance sectors.
“It is important to get this right and we hope the FSA will allow enough time for the detailed discussions which are required.”
The British Bankers’ Association (BBA), whose members sell PPI with personal loans and other unsecured debt, such as credit cards, has told the regulator that its plans contain “serious flaws”.
“As the proposals create so many regulatory and practical problems, we have asked FSA to step back and reconsider their approach in further talks with the industry,” said the BBA in a letter to its members.
“We have told the FSA that these time frames are too short and underline our severe concern that the FSA had published their PPI sales requirements in an open letter to the trade bodies, which sits outside the consultation paper.”
PPI is designed to meet borrower’s monthly loan repayments in the event of accident, sickness or redundancy.
But the FSA shortened its usual consultation period from three months to just one, saying PPI complaints, largely about mis-selling, were continuing to mount and faster action was warranted to limit consumer detriment.
Data from the FSA indicates that in 2008, providers received about 158,000 PPI complaints, of which they upheld about 40 per cent. Of all PPI complaints, only about 16 per cent were referred to the FOS of which about 80 per cent were upheld in favour of the consumer.
“We would be very concerned if the FSA backed down now as the industry has had so much time to get their house in order,” said Which, the consumer group.
The FSA said: “We will finalise our proposals after considering the responses we have received.”
The FSA estimates that a redress package could cost providers between £57m – £115m with an added administrative cost for the industry of £37m to reassess each rejected complaint.
The FSA’s proposals are in addition to an agreement it secured in September for providers representing 40 per cent of in-store sales of unsecured single premium PPI to review their sales book and identify consumers who had been mis-sold.
