The guidance outlines steps that firms should take when writing to customers who may have been mis-sold a policy.
It stresses the importance of explaining clearly why the customer may have been mis-sold and could be entitled to redress, what the customer should do to respond to the firm, the time limits involved and the need to act promptly.
The regulator says that when a firm identifies recurring problems in its sales process it is required to correct them, and as part of this it should consider what action it should take to fairly treat affected customers who have not complained, including contacting them and giving them the opportunity to claim redress.
The proposed guidance sets out the FSA’s expectations that the letters should be clear, fair and not misleading, and include a clear explanation of the following:
- that the letter contains important information and should be read carefully;
- that the customer may have been mis-sold;
- the specific failings that led the firm to believe the customer may have been mis-sold;
- that the customer may have suffered a financial loss and could be entitled to redress; and
- that the letter requires careful and immediate consideration and there is a time limit for making a complaint.
The FSA is also asking firms to ensure these letters are free from financial jargon or marketing material. The guidance consultation stresses the importance of keeping records of any response from the customer and the subsequent actions taken by the firm.
Martin Wheatley, managing director of the FSA, says the guidance marks a key moment in the story of PPI, as so far the majority of payouts have been received before the judicial review but now firms are beginning to consider how to treat customers who were mis-sold but have not complained.
He says: “We think that the redress due from this process may well exceed what has been paid so far, and that is why we are acting now to clarify our expectations.
“By ensuring that firms are clear about the problems they have identified and the potential redress due, we are aiming to prevent people running out of time if they choose to complain.”
In response to the draft guidance, Which? is calling for a set of strong communication guidelines for banks to communicate with consumers about PPI redress.
Richard Lloyd, executive director of Which?, says: “We’ve seen some really poor examples of communication from banks to their customers. There is no excuse for banks making the PPI mess even worse through unclear and confusing contact with customers entitled to compensation.
“It’s essential that the regulator’s new guidelines require all financial providers to be clear with people about their rights to a claim, the process and the time frames for lodging a complaint.”