In response to the Competition Commission's (the Commission) final report into the PPI market which was published on 29 January 2009 (see our previous blog here), the Financial Services Authority (FSA) has considered the measures proposed by the Commission and as a result has clarified its own handbook rules for a firm selling PPI contained in the Insurance Conduct of Business sourcebook (ICOBS).
The FSA has offered guidance on the requirements in the following areas:
At the point of credit sale – if a firm provides oral information about a main characteristic of a PPI policy, it must do so for all the main characteristics of that policy to ensure the customer receives balanced information about the PPI product being offered (ICOBS6.4.2R).
Disclosure of price information – in relation to the regular premium PPI products, a firm should disclose the monthly and the annual premium at inception and at renewal in line with the standards set out in ICOBS.
Personal recommendations at credit point-of-sale – a firm providing advice must ensure that it is suitable advice for the specific customer involved; ICOBS5.3.2G contains guidance on achieving this including a requirement to inform the customer of any demands and needs that are not met. Other obligations regarding demands and needs are contained in ICOBS5.2.2R and ICOBS5.2.3R.
At the PPI point-of-sale – the FSA says that a firm can not rely on oral discussions during the credit transaction to meet its disclosure requirements set out in ICOBS4.2.4R, 6.4.2R and 6.4.5R. Following the Commission's prohibition of the sale of PPI at the point of sale of the associated credit product, the FSA has clarified the rules that will apply to sales of PPI following expiry of the prohibition period. These include the requirement that information being provided must be sufficient for the customer to make an informed decision. In determining when and how to give the information a firm must have regard to the importance of the information in the customer's eyes when making the purchasing decision (ICOBS4.2.2G). A firm must consider the suitability of the product for the individual customer concerned.
Written communication – must be clear, fair and not misleading. The communication must not be a means of leading the customer into believing that they have already agreed to purchase PPI as part of the purchase of a credit product, a customer's decision to buy must be an active opt-in decision. Firms must comply with ICOBS4.2, 5.2 and 5.3.
Customer contacts firm after 24 hours of the credit sale – a firm must still undertake all disclosure requirements in ICOBS and prior to conclusion, any advice and recommendations must be communicated in accordance with ICOBS5.2.2R and 5.2.3R.
Information requirements and standards for PPI sales
Firms must provide appropriate, comprehensible information in a timely manner (ICOBS6.1.5R). They must take reasonable care to ensure customers only buy a policy under which they are able to claim benefits (ICOBS5.1.2).