PPI set to be next mis-selling scandal as FSA sets March 17 deadline for industry to get its house in order
- Firms need to take appropriate action before FSA comes knocking on the door
Payment Protection Insurance (PPI) looks set to be the next big mis-selling scandal as the FSA
is said to have set the industry a March 17 deadline to clean up its act, says Reynolds Porter
Chamberlain (RPC), the insurance law firm.
Details of the deadline have been circulated to members of the Council of Mortgage Lenders executive committee in a restricted memorandum which has subsequently been leaked.
The document says the FSA met with the relevant bodies on December 19 and then in a subsequent letter set out key messages for the industry to take on board. It sets March 17 as a deadline to introduce concrete self-correcting voluntary measures to address these issues.
Comments Jonathan Davies, Partner, at RPC: "The FSA has effectively given the industry a final warning to change its practices immediately or face its wrath."
"If firms fail to do this, the FSA has said it will impose its own corrective actions. This could include measures to separate the sale of PPI from core products, or at least improve the sales processes."
The PPI market has recently come under severe criticism for pricing, transparency and competition issues from the Consumer Association (the consumer advocacy body), with the OFT expected to announce the scope of its own study on PPI soon.
Jonathan Davies says: "The problem for the PPI industry is that the FSA has a tendency to look back in hindsight and retrospectively apply a stricter interpretation of the rules. When this happens a lot of financial services groups who thought they were behaving correctly suddenly look exposed."
Davies adds: "The FSA is often under so much political pressure to get their scalp that the financial services industry stops getting a fair hearing."
The FSA issued a press release on Friday 4 November, indicating that it has already identified some serious PPI mis-selling cases and firms that may be subject to disciplinary action.
Jonathan Davies says: "The FSA has the power to impose unlimited fines on firms that have broken the rules as well as forcing them to compensate consumers who have been mis-sold PPI"
"Good compliance practice will now require all firms to consider not only how to improve their selling practices for the future but also whether their past selling practices have been inadequate."
"If firms do find their past selling practices have been inadequate then they should be taking appropriate action before the FSA comes knocking on the door."
Jonathan Davies explains: "The loss arising from a single mis-sold PPI policy is likely to be relatively small and in most circumstances the redress will be a return of premium. However, if the industry receives a large volume of complaints the aggregated redress has the potential to be very significant. In addition firms face significant administrative costs in investigating claims."
"Insurers may have to refund premiums they have received. However, compensation bills for intermediaries will be the full premium meaning they have to pay much more than the commission they will have originally received."
Jonathan Davies explains that the FSA's attention has been drawn to PPI due to widespread concerns about inappropriate sales, inadequate information, sales to people who already have other insurance and the sale of policies to people who are never going to be able to claim on their policy, for example if they have a pre-existing medical condition.
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Matthew Battersby or Nick Mattison
Mattison Public Relations
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