FSA warns on PPI selling practices

The Financial Services Authority has called on firms to take urgent action to ensure their selling practices for payment protection insurance are in line with regulatory requirements.

The warning follows a programme of FSA visits and mystery shopping that uncovered poor selling practices and a lack of proper compliance controls.

Firms that sell PPI and insurers that provide the policies will be receiving detailed feedback on the FSA’s findings and will have to address any problems. Serious cases will be referred for further investigation with a view to possible enforcement action.

Having put the industry on notice to improve its sales practices, the FSA plans a second round of thematic work early in the next financial year to check compliance levels have improved. It will also be meeting relevant trade associations to seek their commitment to improving the market.

Clive Briault, managing director for retail markets at the FSA, says: “When properly structured, explained and sold, PPI can provide worthwhile cover for consumers against unexpected changes in their personal circumstances. We were therefore pleased to see that sales of regular premium PPI sold with prime mortgages are generally compliant.

“However, compliance standards in other areas of the market, notably single premium PPI business, are generally weak. The firms in which these problems exist must take urgent action to address them.”

Mike Naylor, principal researcher at consumer watchdog Which?, says: “There’s a danger that many people have been sold unsuitable policies, are paying more than they thought or don’t realise they won’t get a lot of their money back if they cancel the policy.”

Ben Stafford, head of policy at the Association of Mortgage Intermediaries, says: “While it’s clear protection products for prime mortgages are being sold compliantly, firms dealing with sub-prime clients should consider these findings carefully. The insurance rules are no less binding than MCOB.”