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FSA victory heralds end of unfair PPI practices

The failure of banks to force a judicial review of the Financial Services Authority’s payment protection insurance rule changes last month is widely viewed as a victory for consumer protection.

In September 2009 the FSA revealed a package of tough measures to protect consumers in the PPI market and ensure they were better treated when buying the insurance or complaining about it.

Along with a ban on single premium PPI, the rules aim to ensure complaints are handled properly and redressed fairly where appropriate. There is also a rule that requires firms to reopen around 185,000 previously rejected PPI complaints and reassess them against the guidance.

Jon Pain, then managing director of retail markets at the FSA, said it was unacceptable that despite previous warnings on poor sales practices, backed by 22 enforcement cases and significant fines, the PPI sector still needed the FSA to intervene.

But in October 2010 the British Bankers’ Association argued the rules applied new standards to past sales and that they went beyond the regulatory requirements the FSA had developed over time.

With some estimates of banks’ liabilities standing at about £4.5bn, it is easy to see why the BBA called for a judicial review.

The BBA has hinted that it may appeal against the court’s decision and there is still the possibility it could be overturned, so any victory parade would be premature.

But the decision does set a precedent that banks must take responsibility for the spirit of their sales even if they obey the letter of the law.

As someone who sold PPI for a credit card company a few years ago, I know all about the aggressive sales tactics advocated and used.

FSA guidelines were loosely adhered to and were seen as a hindrance rather than a responsibility.

The mandatory caveats and regulatory requirements were skimmed through so quickly that customers couldn’t possibly understand the implications.

The banks also sold insurance products on behalf of specialist firms for a commission, but most sellers had no idea whose product they were selling.

Although this was permitted and FSA scrutiny was virtually non-existent, it does not excuse banks from allowing a culture to develop where the customers’ best interests were not the focus.

In a recent interview with the Telegraph, Mervyn King, governor of the Bank of England, said banks had generally put profits before people and preyed on the gullible and unsuspecting.

In this case the FSA has truly acted as consumer champion, with a robust defence of its PPI changes despite an expensive legal campaign by vested interests.

An FSA spokesman says: “We believe this decision signals the end of years of poor complaints handling and will trigger a dramatic improvement in the way customers are treated when they complain.”

The regulator says there have been more than 1.5 million complaints since 2005 with about 60% rejected. But the Financial Ombudsman Service has found in consumers’ favour in the majority of complaints referred to it.

The FSA has refused to put a waiver in place while the case is ongoing so banks must continue to process complaints or face legal action.

Financial services products are complex and expensive, so a robust safety net to protect customers is needed. Skilful salespeople must be allowed to work their magic, but not to the detriment of consumers.



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  • anthony brennan 3rd May 2011 at 5:49 pm

    The banks clearly have a strategy and just as with the bank charges campaign it will be to grind their customers down. There is no doubt in my mind that the banks will appeal this judgement. Whilst this case is ongoing the banks have pleaded “sub judice” and refused to pay out on current claims. They have done this on all claims even if the case is unaffected by the current dispute. This is in contravention of the direction by the bank’s regulator the FSA to continue settling claims whilst this dispute is ongoing

    If the bank fails to settle their claim the customer does have the option to appeal to the Financial Ombudsman Service. However the banks know that currently only 4% of customers bother to appeal to the Ombudsman (despite the fact that the Ombudsman is currently finding in favour of the consumer in 9 out of 10 cases).

    A further reason for delaying settlement is the obligation of the banks to store financial records for a minimum of six years. The whole dispute between the BBA V FSA is on the obligation for the banks to check their records and inform customers of a potential claim. The longer this dispute goes on the more records of potential claims can be destroyed under the 6 year rule. At an average value of around £100 million a month there is every incentive to drag this case out as long as possible.

    Finally by delaying claim settlement the banks will be reducing the cash flow of claim management companies. This will reduce their advertising budgets and reduce the pool of informed potential claimants.

    If a customer feels that they have a potential claim they need to request copies of the original paperwork from the banks as soon as possible and submit their claim.