FSA threatens to clamp down on PPI mis-selling
THE Financial Services Authority, the chief City watchdog, threatened the insurance industry with a regulatory clampdown unless it stopped misselling payment protection insurance (PPI) yesterday.
Clive Briault, the FSA’s managing director for retail markets, said that selling practices were in some cases “very poor”.
He said that unless banks, credit card companies and insurance brokers improved their standards, the FSA could impose new rules on the selling of PPI, which has been slammed as “a £5 billion protection racket”. Consumers are frequently unfairly pressured into buying PPI when they take out loans or credit cards. Terms aren’t properly explained. Many customers are persuaded to buy even though their circumstances, for example selfemployment, preclude them from being able to claim.
The margins are huge. PPI can add £1,000 to the cost of a £5,000 personal loan. Barclays is estimated to make a fifth of its profits from PPI.
Mr Briault said: “We are determined to improve standards in this market and intend to publish in November examples of good and bad practice so that firms know what we expect from them.”
Sellers of PPI could be forced to disclose more on pricing, on policy exclusions and on alternative sources of PPI, he said.
Mr Briault also hinted that the competition authorities might act. He referred to new Competition Commission measures, announced last week, for the sale of PPI linked to store cards. Citizens Advice last week issued a semi-official “super-complaint” to the Office of Fair Trading after unearthing evidence of a widespread mis-selling scandal. The supercomplaint could lead to a formal inquiry.
The FSA stressed that its preferred remedy would be for the industry to improve its own standards. It also said that any changes to regulations would have to be justified by costbenefit analysis.
The FSA is also investigating the selling of critical illness cover. It said that it had uncovered evidence of scaremongering tactics in advertising.
Mr Briault announced plans for a review of the regulation of general insurance, which came under the FSA’s aegis in January, with 11,000 firms regulated. The review, beginning next April, would examine whether the regime is working effectively. Initial findings would be published next year.
The Association of British Insurers said that the regime was working well. The British Insurance Brokers’ Association said that some of its members were concerned about the additional compliance costs.