FSA mystery shopping finds problems with PPI

The Financial Services Authoritys mystery shopping exercise into the selling of payment protection insurance has revealed a massive gulf between how the product is supposed to be sold and how it is sold in practice.

Firms involved with the selling of PPI will be receiving detailed feedback on the findings and will be required to address any problems raised and the most serious cases will be referred for further investigation with a view to possible enforcement action.

A second round of investigations is planned during the next financial year to check that compliance has improved.

Amongst the major concerns highlighted by the survey was the risk of inappropriate sales. Around half the firms failed to take reasonable steps to ensure that customers did not buy policies on which they could not claim or which provided only limited cover.

Advice on PPI was often likely to be poor and most firms did not have systems in place to assess suitability adequately. There was an over-reliance on product documentation given to the customer at the expense of explaining the policy orally. Most firms selling by telephone did not give sufficient information on exclusions.

A further recent mystery shopping exercise commissioned by payment protection specialists British Insurance echoed many of the same concerns but also highlighted a huge variation in prices charged.

The survey which investigated loan protection sold by lenders chosen from the High Street, national newspapers, the internet and the telephone directory, found that prices per 100 of monthly cover varied from 5.95 to 30.99 a month.

Simon Burgess, managing director of British Insurance says: Policies obviously vary in their scope of cover, but dont try telling me that they do so by amounts that necessitates such huge price differentials. There is blatant profiteering taking place.

I was invited to meet with the Office of Fair Trading to provide background information on the payment protection market in conjunction with the super complaint recently made by Citizens Advice. The OFT has specifically requested to see the results of this survey and I will be handing over all 11 volumes very shortly.