In our previous blogs on the Payment Protection Insurance (PPI) market, we discussed the Competition Commission's Final Report published on 29 January 2009 (see our blog here) and the Financial Services Authority's (FSA) response (see our blog here). In addition, we published a blog relating to the FSA's advice to firms to stop selling single premium unsecured PPIs (see our blog here).
The FSA published a Consultation Paper on 29 September 2009 entitled The assessment and redress of payment protection insurance complaints (the Consultation Paper). This unveiled a package of tough measures to ensure firms treat consumers better when complaining about PPI and protect consumers in the PPI market when buying PPI.
Complaints about PPI
The FSA is proposing to launch new measures which will tackle the key issue of too many complaints being rejected by insurers, which are subsequently overturned by the Financial Ombudsman Service (FOS) in favour of the consumer. The measures will apply to complaints relating to the sale of any kind of PPI policy. Complaints relating to poor administration or delays in paying claims, for example, are not covered by the proposals. The Consultation Paper proposes:
- guidance on the fair assessment and (where appropriate) redress of complaints relating to sales of PPI. The FOS has indicated support for the FSA's action in this regard and published a standardised PPI complaint questionnaire to issue to complainants;
- guidance setting out standards of redress where the complaint is upheld. Particular detail is provided on the redress of complaints relating to the sale of single premium policies, where, for appropriate cases, the FSA proposes that comparison is made to an alternative regular premium policy that the consumer would have needed, wanted and been prepared to buy at the time; and
- rules requiring firms to re-assess, against the proposed new guidance, complaints relating to PPI sales that the firm has previously rejected. Some 185,000 previously rejected PPI complaints may, in fact, need to be reviewed.
The Consultation Paper considered that firms' unfair assessment of PPI complaints reflects:
- deficiencies in the general assessment of such complaints, including not investigating the complaint properly, and giving too little weight to the particular events and circumstances of the specific sale to the complainant;
- specific deficiencies in assessing such complaints arising from firms' failure to consider PPI sales standards appropriately (including the FSA's principles); and
- deficiencies in assessing fair redress where a complaint is upheld.
The FSA states that these standards fall short of what its principles and rules require. As such, firms have been encouraged to consider whether they failed to comply with the FSA's rules, were otherwise in breach of the duty of care, or in breach of any other requirement of the general law when selling the PPI policy. In addition, the FSA has encouraged firms to assess whether, if it were not for such failings, the customer would have taken a different course of action.
It should be noted that the FSA is not only addressing complaints handling but the protection of the consumer when buying PPI.
The FSA is also trying to ensure fair outcomes for consumers and that a firm's conduct adheres to its principles and rules. The FSA has taken 22 enforcement actions against the mis-selling of PPI, imposing fines totalling £11.8 million and requiring the redress of consumers who suffered detriment.
The FSA has also got firms, representing more than 40% of face-to-face sales in the single premium unsecured PPI market, to agree to review these sales and redress those consumers identified as mis-sold. The remainder of the market will be subject to an ongoing supervisory action. This has developed following the agreement that the FSA obtained from the industry earlier in 2009 to stop selling single premium PPI.
Moreover, the FSA has begun targeted reviews of sales of single premium PPI on secured loans (second charge mortgages), which will be extended to sales of PPI on credit cards in due course. If the potential for mis-selling is identified, pro-active reviews by firms may extend to these areas too.
The consultation period ends on 30 October 2009. The FSA will review and finalise its proposals in light of the responses received and aims to set these out in a Policy Statement by the end of December 2009. The FSA's aim is for the industry to show it can act fairly, consistently and in the best interests of consumers. Where the FSA finds problems in PPI sales or complaints handling, firms should expect tough action, including requiring them to conduct reviews and, where appropriate, pay redress.