Redress for victims of insurance mis-selling
The Telegraph 05/02/2007
Thousands of shoppers who signed up for insurance when taking out a store card could be in line for a refund of premiums, writes Emma Simon
Thousands of shoppers who signed up for insurance when taking out a store card could be in line for a refund of premiums.
GE Capital, the bank behind many British store cards, was last week fined £610,000 by the Financial Services Authority for failing to ensure that staff followed correct procedures when selling payment protection insurance (PPI).
These controversial insurance policies are designed to pay out if a customer can no longer repay loans or credit card debt because of illness or unemployment. However, PPI policies have been widely criticised for being expensive and riddled with exclusions, which are rarely explained to consumers.
According to the Office of Fair Trading, only 15 to 20 per cent of premiums are paid out in claims, a ratio that is three or four times higher in most areas of consumer insurance.
GE Capital is in the process of contacting all affected cardholders. It says no customers will be left financially worse off as a result of its flawed sales process. In some cases customers will be offered a refund of premiums; alternatively, GE Capital will honour any insurance claim without applying exclusions or limitations contained in the small print of the policy.
The fine is the biggest that the FSA has issued to date over the sale of payment protection insurance, and partly reflects the sheer number of customers potentially affected. GE Capital runs store cards for Debenhams, Laura Ashley, House of Fraser, Mothercare, Halfords, BHS and Asda, among others.
In all, the bank was responsible for an army of 300,000 shopworkers who were often incentivised to sell store cards and associated insurance products at the till. In a single year GE’s agents sold 850,000 PPI policies.
The FSA found that some of these customers were not informed that PPI was optional. Others did not know that it was insurance, and some customers were not alerted to a fact box spelling out the exclusions.
The FSA also found that GE had failed to "amend its procedures for selling insurance in light of its own evidence, emerging in 2005, of widespread non-compliant selling practices".
In the face of such shoddy practices, the FSA was poised to impose an even stiffer financial penalty. But it said a fine of £870,000 had been reduced by 30 per cent because GE fully co-operated with the inquiry and had taken prompt remedial action.
GE is unlikely to be the only credit card provider or lender bought to book over its sales of PPI. A couple of loan providers, including loans.co.uk, have already been fined, and it is expected that a number of other household names will face similar enforcement action over the next few months.
Margaret Cole, the FSA's director of enforcement, said: "Millions of people take out store cards every year. They need to know that PPI is almost always optional and should consider whether they need it before signing up.
"Our focus on PPI will remain very high this year. We are determined to see significantly better practice in PPI sales and will crack down where firms fail to treat their customers fairly."