FSA listens to MPs' worries over PPI products
In yet another blow to UK lenders, the Chairman and Chief Executive of the UK’s Financial Services Authority (FSA), a government sanction watchdog, having been listening to the concerns of Members of Parliament that payment protection insurance (PPI) products are still not treating consumers fairly.
This latest action by the FSA follows a damming report recently issued by the FSA that many lenders are still refusing to give their customers clear and precise information when selling PPI products, especially single premium policies, and the fact that PPI products are an optional extra – rather than compulsory.
The fact that PPI products are an optional, rather than compulsory, extra has also lead to the Office of Fair Trading (OFT) referring the market for PPI products to the Competition Commission, arguing that Britons are getting a poor deal. For many UK lending institutions, this will not be the first time they have had a run in with the OFT this year and it is highly likely that the results from charges on late payments on credit cards that the OFT raised earlier this year will be repeated again with commission based PPI products.
The concerns of both the FSA and OFT were also highlighted by Labour MP Angela Eagle, who told both the Chairman and Chief Executive of the FSA that “…there’s a lot of hidden stuff going on and people who are selling these very dodgy products [PPI] are actually on huge commissions and they’re basically ripping off customer?”
Banks, on the other hand, will have a major concern that a product that they see as meeting a real need, and which generates over £5.5 billion a year in revenue, will be pushed aside because of the actions of a few salesmen who may be overly aggressive in their sales technique, rather than seeing the sale of PPI products within a broader industry standard.
The question that will be on everybody’s mind is whether PPI products are being sold by banks and lending institutions in the UK with the genuine concern that it guarantees UK borrowers’ debt repayments in the event of their sickness, accident or unemployment, or whether commission based fees are the driving force. Given the exclusion clauses currently contained in many PPI products, this factor may be a hard one for UK banks and lending institutions to rebut and may lead to their eventual downfall.
Either way, it is unlikely that UK lending institutions are going to be given the leeway they previously had with sale of PPI products in the future, which only leaves the question of how those who have already been sold a PPI will be treated going forward.
Richard Smith
12th October 2006
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