|
19-10-2006
National charity Citizens Advice has urged swifter action in response to today’s publication of the Financial Services Authority (FSA) review into payment protection insurance (PPI), to do more to protect consumers.
It comes on the day the OFT has published its analysis of the market and announced its intention to refer the UK PPI market to the Competition Commission. The OFT analysis shows that PPI is still failing customers, giving them a poor deal. The analysis also concludes that there is limited evidence that the industry is taking steps to improve the situation.
In September 2005 Citizens Advice made a ‘super complaint’** to the Office of Fair Trading, calling on them to launch an investigation into the PPI business, which has an estimated 20 million policies in force and produces annual revenue in excess of £5 billion.
Its report Protection racket, showed that in many cases PPI is more about providing an additional source of profit for the financial industry than about protecting consumers. Policies sold by several well-known mainstream lenders exclude cover for common problems like bad backs and mental health problems that can stop people working. Many also have arbitrary age limits and ban the self-employed and those on fixed-term contracts from making a claim. Earlier research found that 85% of CAB clients who had claimed on payment protection insurance had been unsuccessful - in sharp contrast with industry assertions that only 15% of claims are turned down.
Response to FSA
The FSA review concludes that whilst a number of firms have improved their sales standards over the past year, visits to 40 firms show there are still three key areas of widespread concern. The FSA review shows that it is still not being made clear to customers that PPI is optional, people are not always made aware that that there may be parts of the policy under which they cannot claim and that not enough is done by firms to ensure that the PPI polices they recommend are suitable for the customer.
Teresa Perchard, Director of Policy for Citizens Advice said:
"We’re pleased that both the OFT and FSA agree with us on PPI, but very disappointed that the FSA has not done more to protect consumers, and would have preferred a stronger response from both regulators. Our evidence shows clearly that people are often sold completely inappropriate policies, with high-pressure sales sometimes forcing people to take out insurance that they neither need nor can afford. We are pleased that the FSA review has, in its own words identified ‘major weaknesses’ in the industry, but still not enough has happened to ensure people will not continue to be misled over PPI. It is also disappointing that two such large regulators appear not to have the teeth to deal with PPI problems without referring it to another body.
"A year ago we urged the FSA to develop a basic PPI policy setting out minimum acceptable standards for lenders and a cap on the cost of premiums and no blanket exclusions. This has not happened, but would still do much to improve things for consumers.”
Response to OFT
Teresa Perchard continued:
"The work done already by the OFT is important, but we need to see a firm timetable from Competition Commission so that consumers know exactly where they stand. The message to the industry must be clear - it needs to clean up its act now.”
"Our message to the FSA and the Competition Commission is that until there is more onus on firms and lenders to address the way they sell loans and insurance, thousands of people, including vulnerable people on lower incomes, will still be misled and mis-sold policies.”
CASE STUDIES
A CAB in the Midlands had a client who had taken PPI with three lenders. These would not pay out because the client was unable to work due to mental health problems. The client was led to believe by the sellers that they would pay out in the event of her becoming ill and unable to work The client states that the exclusion of mental health was not pointed out to her at the time the PPIs were purchased. The client has depression which is being compounded by her inability to pay her debts. Had the PPIs paid out some of her debt problems would have been eliminated.
A CAB in London reported a client who was a lone parent with children and had been mis-sold PPI when she entered into a credit agreement. The loan was offered to the client, even though she made it clear that she was unemployed. Payment protection insurance can cover repayment of certain credit agreements, but as client was not employed at time of taking out the policy, she is not eligible for cover. Client was paying payment protection insurance premiums by instalments which are included with the normal repayments of the loan. Problems arose when the client tried to make a claim because the policy is invalid. Client was ineligible when she first took out the policy, therefore, she now needs to request the insurance company to cancel the policy and refund the premiums.
Notes to editors about Payment Protection Insurance
Citizens Advice Protection Racket report (September 2005)
**A super complaint can be made by a designated group of consumer organisations on a specific issue. The complaint is a request to the OFT or other specified regulator to investigate an issue or a market that the consumer body believes is working against the consumer interest. The OFT or other specified regulator is required to publicly respond to a super complaint within 90 days to say whether:
a) they believe it is an issue - if not, why not
b) how they intend to deal with it.
This is the second super complaint to be lodged with the OFT by Citizens Advice since the new powers designed to end market abuses were introduced in 2002. The first was about doorstep selling and triggered OFT investigation, leading to tighter controls including improved cancellation rights.
Notes to editors:
- The Citizens Advice service is a network of independent charities that helps people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see
 www.citizensadvice.org.uk
- The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
- Most Citizens Advice service staff are trained volunteers, working at over 3,300 locations across England and Wales.
- Advice and information www.adviceguide.org.uk
- Volunteer hotline 08451 264264 (local rate)
- Citizens Advice Guide to your rights, second edition: January 2008 - over 600 pages of practical, independent CAB advice. An invaluable resource for any bookshelf - available from all good bookshops; price £11.99; ISBN: 9780141034089
|
