Payment protection insurance is known to be expensive and often of little value to consumers because of inadequate policy coverage, consumers pressured or deceived into buying PPI and not having their policy properly explained to them. The FSA has taken action against 24 firms and individuals for PPI failings with fines of £13 million and issued a defacto ban on single premium PPI by getting providers to agree to stop selling these on unsecured loans, the Financial Ombudsman is still seeing rejected complaints being overturned (complaints about single premium secured loan PPI continue to show significant complaint numbers (c.10,000 in 2009), high firm rejected complaint rates (ranging from 65%-95%) and high FOS overturn rates (typically over 90%), and what are the consequences of the OFT and Competition Commission’s findings? Is enough being done to address past mis-selling and unfair post-sale behaviour, and securing improved sales practices?
FSA
Lots of fines have been issued in 2008. In the last five years there have been more than a million complaints made to firms about PPI. In 2009/2010 alone, customers referred 49,196 complaints to the Ombudsman which then upheld nine out of ten in the complainant’s favour.
Since the FSA took on regulation of PPI in 2005 it has taken enforcement action against 24 firms for sales failings. The FSA has carried out three thematic reviews, issued warnings, halted the selling of single premium PPI with unsecured personal loans and visited over 200 firms in order to improve the market.
- The FSA outlined a package of new complaint handling measures in a policy statement.
- The FSA outlined its reforms for the PPI market in consultation papers 09/23 and 10/06.
- In February 2009 the FSA halted the selling of single premium PPI sales on unsecured loans by writing to chief executives requesting its removal from the marketplace.
- The FSA has taken action against 24 firms for failings in relation to PPI sales with fines totalling nearly £13 million. This includes the FSA’s largest fine in the retail sector on Alliance & Leicester which was fined £7m in October 2008 for serious failings in its telephone PPI sales.
- FSA data (received from 18 major sellers of PPI) shows that on average, firms reject almost half of the PPI complaints they receive, but some reject nearly all. Around 30% of rejected complaints go on to the Financial Ombudsman Service, where more than 80% are overturned in the consumer’s favour.
Some Press releases:
08 Oct 2010 FSA to contest the BBA's judicial review of new PPI complaints handling measures
10 Aug 2010 FSA confirms measures to reform PPI market and protect consumers
Package of measures stemmed from serious concerns about: Widespread weaknesses in previous PPI selling practices and the detriment such selling was likely to have caused to a significant number of consumers; and the industry’s poor handling of the increasing volume of PPI complaints, and its neglect of root cause analysis and fairness obligations toward non-complainants.
Package of measures should be seen in the context of FSA wider strategy and work concerning weaknesses in past PPI selling practices,which includes:
- 24 enforcement actions against the mis-selling of PPI, which have imposed fines totalling ￡12.6m;
- agreeing past business reviews in a number of the enforcement cases;
- several major firms delivering appropriate past business reviews of single premium PPI sold face to face with unsecured personal loans;
- our pursuing targeted sales assessment work in the credit card and second charge mortgage PPI markets; and
- examining the new generation of protection products now being developed to supplant PPI and the risks these may bring and, where necessary, robustly challenging firms on these.
Industry-wide steps we have taken to improve PPI outcomes for consumers including:
- securing industry agreement to not include nil refund terms in contracts with new customers and not apply such terms in contracts with existing customers;
- securing industry agreement to stop selling single premium PPI with unsecured loans;
- feeding into and supporting the package of measures being implemented by the Competition Commission in the PPI market; and
- securing agreement with the Mortgage Payment Protection Insurance sector to proactively refund increases in premiums and reverse reductions in cover for customers who experienced these changes to their policy in 2009.
Here are some FSA replies to Industry criticism of their actions:
The failings and thematic reports
We do not accept that our previous thematic reports on PPI are inconsistent with the failings in the open letter. The thematic reports published in November 2005, October 2006 and September 2007 consistently identified unacceptable outcomes now set out in the open letter. For example, all three reports identify pressurised sales (failing 1) as an example of poor practice. Also, in all three reports we identified as a key concern the fact that many firms were still not giving customers clear information during the sales conversation about whether PPI is optional (also failing 1). In all three reports, we said that firms needed to improve information given to customers about whether or not the sale was on an advised or non-advised basis (failing 9). Relevant poor behaviours (many of them now set out in the open letter) have also been flagged up by us in other published supporting material, such as Dear CEO letters, speeches and enforcement final notices. The fact that not all the failings were always set out in every general communication where they might have been relevant does not undermine their correctness or our assertion of them now in support of consumer protection. (See also the discussion at para 2.28.)
Our response:
Is there a widespread problem with PPI sales?
Since 2005 we have gathered, over several years and phases of work, wide and deep evidence of weaknesses in PPI sales practices across the market – see the table and text on p 9 of CP10/6 concerning our firm visits and findings, our mystery shopping exercises, and enforcement actions. We would add that the November 2005 mystery shopping exercise saw 52 shops completed across 19 firms, and the September 2007 exercise saw 114 shops completed over a smaller number of firms. A majority of the shops in both exercises had at least one failing identified and many of them had more. We would also note (and have had regard to) relevant findings from the Office of Fair Trading (OFT) and Competition Commission (CC). For example, the CC report of January 2009 noted among other things that the cost of PPI was being presented in a way which was having a detrimental effect on consumers’ ability to understand pricing information, and also that significant numbers of consumers perceived either that PPI take-up would have a positive influence on their credit application or that it was a condition for taking the credit. More generally, the CC report noted its survey findings from 200721 which concluded that there was a considerable amount of customer confusion on product features and benefits. These findings from the CC give weight to our view that identified weaknesses in PPI sales practices were translating into actual poor outcomes for a significant number of consumers. Is there a link between large and growing PPI complaint numbers and PPI selling practices? As noted above, our extensive work on PPI sales has provided extensive evidence of poor sales practices across the PPI market, and other bodies have independently also expressed concern about and criticisms of the PPI market and its practices. In that context, it is not unreasonable for us to have reached our own view that there is a prima facie link between growing complaints and a widespread problem with sales of this product. We disagree with some firms’ efforts to lay rising complaint numbers solely at the door of third party claims management companies (CMCs). That complaints may often have been prompted by the adverse publicity about PPI does not mean they are spurious. It may well mean instead that adverse publicity has made consumers more clear and informed about PPI than did firms’ (often deficient) disclosures, and so aroused consumer concern and dissatisfaction, leading them to complain (see CP10/6 p 9-10). Our experience indicates that CMC involvement tends to proliferate where there are consumer doubts about the fairness of firms’ complaint handling, as with mortgage endowment and bank charge complaints previously. We would have been less concerned about the PPI complaint numbers if most of them had turned out to be unfounded, either because no sales failing had taken place, or because such failings as had occurred had not caused the consumer any detriment. However, the FOS has considered over 60,000 PPI sales complaints and has upheld the great majority of them (over 80%) in favour of the consumer, nearly always with an award of redress. In our view, this demonstrates that there is a genuine link between widespread weaknesses in sales practices, poor consumer outcomes, and actual consumer detriment. One industry response objected to this weight we had given to statements made by firms in dialogue with us, seeing it as inappropriate and as likely to reduce candid exchanges of views between industry and regulator in the future. However, we do not see how or why we ought not to take into account what industry has said to us about likely non-compliance. Moreover, firms have an obligation to deal with us in an open and cooperative way under Principle 11. (We recognise that firms’ statements in this regard reflect their view that their sales only fail against the inappropriate standards they believe we are imposing, views we have considered as part of the consultation.) Overall therefore, responses have given us no cause to depart from our view that:
- there are genuine widespread weaknesses in sales practices across the PPI market;
- much of the large volume of PPI complaints about such sales reflects sincere consumer dissatisfaction, not opportunism (which is not to say dissatisfaction necessarily means there was a mis-sale); and
- some significant proportion of this dissatisfaction reflects genuine poor outcomes and detriment to consumers caused by many firms’ sales practices.
Does there need to be a problem with complaints handling?
We have been concerned to address the significant potential consumer detriment caused by weaknesses in firms’ PPI selling practices. Some consumer stakeholders have called for an industry-wide review of past PPI sales under s404 of FSMA (‘Review of Past Business’) to do this. But we have followed a strategy that we consider swifter and more proportionate, consisting of the package of measures discussed in this PS and various other actions (set out in paragraph 1.5). By their nature, problems in the conduct of business will generally cause potential detriment to consumers. We are also clear, despite what the industry says, that using a complaints-led approach as a key part of remedying such detriment is a reasonable regulatory approach, and that sales and complaints about sales should not be perceived as two separate and unrelated domains. A complaints-led approach to addressing mis-selling is one we have taken before (e.g. with mortgage endowments) and, as noted, it is an alternative to other tools for addressing mis-selling such as a s404 review of sales. We would assert therefore that, in principle, a complaints-led approach could reasonably be deployed by us as an appropriate and reasonable regulatory tool even absent any evidence of unfair complaint handling. If, instead, we had always to establish separately that in addition to an apparent mis-selling problem, there was a crystallised problem with relevant complaint handling, then this would potentially prevent us from deploying such a complaints-led approach in a swift and timely way.
Is there a genuine problem with complaints handling?
In practice, for a complaints-led approach to remedying potentially widespread mis-selling to be effective, and for consumers to get fair outcomes from it, it is clearly of the essence that firms act fairly, effectively and consistently when handling complaints and considering non-complainants. We have serious concerns that many firms have not been doing this for PPI complaints, even as their number grew rapidly. Despite industry criticisms, we remain of the view that we do have strong evidence of complaint handling failings, not just of sales failings. One important ground for our serious concern about firms’ PPI complaint handling, to which we have attached weight, is the difference between firms’ decisions on PPI complaints (majority rejected) and the FOS’s decisions (most upheld for consumers), and the consequent inconsistency in complainants’ outcomes. While it is true that the proportion of firm decisions over-turned by the FOS was not equally high for all firms or all sectors of the PPI market (which we discuss further below), the proportion was very high for many firms covering a significant proportion of the market. In our sample of reporting firms, covering over 80% of the market (by gross written premium), over-turn rates at the FOS ranged from 33% to 99% in the period January-September 2009, but averaged 87% (in line with the FOS’s overall over-turn rate of 89% for PPI sales complaints to firms in general). In spring 2008, we wrote a ‘Dear Compliance Officer’ letter to 22 groups (covering 26 regulated entities) for whom PPI complaint numbers were significant. In each letter, we presented to the firm (from the statistical data available to us) its position relative to the rest of the peer group in terms of over-turn rate at the FOS, speed of handling and success in resolving PPI complaints (as opposed to building up a backlog of them). We also set out a number of considerations concerning the fair assessment of such PPI sales complaints, including about the assessment of evidence and of the firm’s own behaviour at point of sale. We highlighted particular concerns to those firms who were weaker on the statistical measures, and we asked them to provide us with action plans for improvement. These were discussed and, where appropriate, challenged, during the summer of 2008.
During 2008/09, we also reviewed 131 PPI sales complaints files from four firms, of which 52 complaints were handled unsatisfactorily, results which further contributed to our ongoing concerns. In addition, we would note:
- the intelligence we received from the FOS and other sources (e.g. Citizens Advice Bureau, Consumers Association), and from firms themselves (through dialogue, correspondence and complaints reporting), about firms’ deficient approaches to PPI complaint handling (including their flawed view of applicable sales standards); and
- our findings on weaknesses in the handling of other types of complaints by some major banks, most of whom sold PPI.
There has been little sign of improvement in practice across the industry, or of improved consumer outcomes, as PPI complaint numbers continued to grow, firms’ rejection rates remained high, and their ‘overturns’ at the FOS likewise remained high. We would further note that we proceeded initially on the basis that industry (a number of trade bodies) had itself proposed PPI complaint handling ‘industry guidance’ as an appropriate solution to the concerns being expressed by various public bodies about poor sales practices and poor complaint handling. We proceeded to propose Handbook text when it became clear that industry could not agree on details or on an approach that was sufficiently robust and wide ranging to address our and other public bodies’ concerns and to support a complaints-led approach to addressing PPI sales failings.
Concerning FOS decisions
We have had extensive discussions and correspondence with the FOS,23 and these have helped us to understand the key themes that run through many of its PPI complaints decisions and its approach to assessing PPI sales. We have looked at a sample of examples of FOS decisions, which confirm that the FOS has been making its decisions in a way generally compatible with the approach we have consulted on and finalised here. We have also examined the FOS policy and other materials on PPI complaints handling which it published in November 2008 and subsequently, which are consistent with and reflect the approach taken by the FOS in the decisions we have seen. In addition, firms have criticised FOS decisions to us, and we have considered and discussed firms’ concerns, both bilaterally with some and in the industry group discussions, and such discussions gave further intelligence about the FOS’s approach. We have not seen any convincing evidence to support the industry claim that the FOS significantly changed its approach after that published policy of November 2008. And in any case, we had evidence of, and were concerned about, the high rate of overturns firms were already experiencing at the FOS at end 2007 and through 2008, so it is clear the FOS’s approach at that time was already identifying a high incidence of poor complaint handling and of consumer detriment from PPI sales. The consistent tenor of our extensive discussions with the FOS, the industry criticisms of FOS decisions, and the FOS decisions on cases we have seen, is entirely consistent with the FOS’s stated approach, which we have been able to evaluate in the round. We thus remain confident in our statement in CP10/6 that: ‘our view of the relevant regulatory standards and conduct which falls short […] and the FOS’s conclusions about individual cases […] are compatible. As such, we are confident that we are right to treat data and intelligence from the FOS as one important source of evidence (among others) for our concerns that firms are not handling PPI sales complaints fairly and as one of a number of factors to which we have attached some weight (alongside our own work) when deciding on our proposed measures.
Conclusion
Overall therefore, we consider that the rationale for the finalised measures we set out in this Policy Statement is sound and robust.
Further press releases:
28 May 2010 FSA introduces temporary rule to give recent PPI complainants more time to refer complaints to the Financial Ombudsman Service
7 October 2009 FSA and firms reach agreement on MPPI
29 September 2009 FSA unveils tough measures to protect PPI consumers
Package of tough measures to protect consumers in the Payment Protection Insurance (PPI) market and ensure they are better treated when buying PPI or complaining about it. Firms representing more than 40% of face-to-face sales in the Single Premium Unsecured Personal Loan PPI market have agreed to review these sales and redress those consumers identified as mis-sold. Ongoing supervisory action continues with the remainder of this market place. These measures build on the agreement the FSA obtained from the industry earlier in 2009 to stop selling Single Premium PPI on unsecured loans. For complaints about all PPI products, new measures will tackle the key issue that too many complaints are rejected by firms and then overturned by the Financial Ombudsman Service (FOS) in favour of the consumer: New guidance (due to take effect by the end of the year) will ensure PPI complaints are handled properly, and redressed fairly where appropriate - the FOS has indicated support for the FSA’s proposed approach; and a new rule will require firms to reopen some 185,000 previously rejected PPI complaints and reassess them against the guidance. In addition, the FSA is launching targeted assessment of sales practices for PPI on secured loans and credit cards; if the potential for mis-selling is identified, pro-active reviews by firms may be extended to these areas too.
24 February 2009 FSA wants all firms to stop selling single premium PPI
20 January 2009 Update on FSA work on the sale of PPI
OFT
OFT market studies: Payment protection insurance - April 2006
Action following market study: Market investigation reference made in February 2007. Emerging thinking published in November 2007: the underwriting market is concentrated - not all underwriters are big enough to underwrite the distributors' business. There do not seem to be significant barriers to entry though incumbent providers may have an advantage when re-tendering for contracts. On the whole there are no significant features that prevent, restrict or distort competition in the underwriting market. Competition Commission (CC) looked further at the retail market to determine degree of competition, customer search costs, switching costs, levels of commission, pricing and profitability. Vertical integration does not appear to affect competition adversely. Provisional findings published end May 2008. Final CC report published 29 January 2009 Draft Order for consultation published on 07 July 2009 and ended on 07 August 2009. CC working on final Order.
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