Leading banks and building societies are among providers
that have been caught redhanded by the Financial Services
Authority in an investigation into the mis-selling of
loan protection insurance.
The FSA reported that it uncovered widespread evidence
of poor practice following a secret survey of 30 providers
of the cover, also known as payment protection insurance
(PPI).
The watchdog will report on its investigation into serious
cases of potential mis-selling of PPI next year. Those
found guilty face heavy fines. The evidence underlines
Financial Mail's long-term campaign to highlight the mis-selling
of such insurance, which should protect borrowers if they
become unemployed or unable to work due to illness.
Typically, PPI is sold alongside loans, credit cards
and mortgages. About half the companies surveyed failed
to explain the details and exclusions to customers, or
make sure they were suitable for individuals. In some
firms, the FSA found the level of incentives for staff
could lead to mis-selling.
Though the report found no evidence to suggest companies
were selling PPI as a compulsory insurance, in many cases
it was automatically included in the loan quote without
customers being told cover was optional.
Also, providers often failed to make it clear when insurance
was added to the loan in a lump sum, rather than being
paid for monthly. The FSA report described PPI as a 'relatively
complex product, which is often sold to vulnerable customers'.
Clive Briault, managing director of retail markets for
the FSA, says: 'The poor disclosure of product and price
details, the possibility that customers might not be eligible
to claim against policies, and the fact that they might
be unaware that they could receive back little money if
they cancel early, all pose a serious risk to consumers.'
Sales of PPI are estimated to earn more than £1bn
a year in profits for the big banks. About half of all
customers are sold PPI by banks, but only four per cent
claim, according to the Department of Trade & Industry.
Of these claims, a quarter are rejected.
There are campaigns for action to protect consumers against
being mis-sold costly and inappropriate insurance. We
have uncovered numerous cases of customers being sold
cover on which they could not claim, and people being
quoted loan repayment figures that included expensive
payment insurance without the cost being made clear.
Recently The Citizens Advice made a 'supercomplaint'
to the Office of Fair Trading, demanding it investigate
the murky world of PPI sales. A further mystery shopping
exercise by Trading Standards officials that highlighted
the way staff in banks and building societies pushed expensive
policies on to loan customers.
Simon Burgess, is managing director of independent insurance
broker British Insurance, which sells stand-alone PPI
policies. He says customers taking out PPI alongside an
unsecured loan with one of the big banks typically pay
about £30 per £100 of loan insured. He says
this compares with between £4 and £6 if cover
is bought separately.
Stand-alone providers include Paymentcare and British
Insurance. Price comparison service uSwitch.com says taking
out PPI with banks can inflate the amount consumers pay
for cover by nearly 500%.
HSBC said: 'The PPI part of the repayments are higher
at the beginning of a loan because it is then that the
insurance risk is greatest. 'We have had no adverse feedback
from the FSA in relation to our PPI products or procedures.
However, we will review the FSA's recommendations and
pursue those actions that are in the interests of our
customers.'
.gif){kind=spacer}
