The Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have joined forces to help prevent the problems associated with payment protection insurance (PPI) recurring in a new generation of products.

They are consulting on proposed guidance to firms in relation to PPI, which can fall within either regulator’s remit.
This is a key time as the market shifts away from PPI and firms begin to develop new products or product features – such as short-term income protection, or debt freeze or debt waiver as elements of a credit agreement or mortgage.
The two organisations will continue to monitor developments in the market, and will take appropriate action under their respective powers where firms’ products or practices risk causing detriment to consumers.

PPI and the FSA

The FSA’s guidance stresses that firms should ensure that product features reflect the needs of the consumers they are targeting. There are four key areas of concern:

• firms not properly identifying the target market for the protection product;
• the protection not reflecting the needs of the intended consumers;
• the benefit of a successful claim not matching the needs of the claimant; and
• product features or pricing structures creating barriers to comparing products, exiting a policy or switching cover.

Margaret Cole, FSA managing director, said: “This is the first time that the FSA has issued guidance on the design of a specific product. Firms must learn the lessons of the past and make sure they have consumers’ needs at the heart of new product development.
“That is why we are acting early to ensure firms understand the risks they should bear in mind when designing these products, and how they can manage these risks when developing or distributing the product.
“The FSA cited new forms of payment protection products as an emerging risk in its Retail Conduct Risk Outlook earlier this year, and we are following up on that warning with this important piece of work. We want to put consumers ‘front of mind’ for the providers and distributors of these products.”

PPI and the OFT

The OFT’s guidance sets out how the OFT considers the Consumer Credit Act (CCA) applies to payment protection products such as debt freeze or debt waivers linked to a regulated credit agreement, and what firms can do to ensure compliance with the CCA.
In particular, firms should ensure that consumers are absolutely clear about the nature, price and implications of payment protection products.
For example, if an agreement is offered with an option to choose debt waiver terms, upon payment of a fee, it may be necessary to provide financial information including and excluding the cost of the debt waiver.
The guidance also sets out examples of business practices in relation to payment protection products which the OFT is likely to regard as unfair or improper (whether unlawful or not) and so may cast doubt on fitness to hold a consumer credit licence.
David Fisher, the OFT’s director of consumer credit, said: “It is important that the problems encountered with mis-selling of PPI do not arise in relation to new payment protection products.
“Firms need to ensure that they comply with relevant legislation and do not engage in unfair or improper business practices. In particular, they should make clear to consumers what they are signing up to, and how much it costs, so that they can make properly informed decisions.”
The consultation will be open for 10 weeks, closing on 13 January 2012. responses by email  to Gareth Walton, paymentprotectionproducts@fsa.gov.uk

The guidance consultation paper can be found on the FSA website.

Date: November 1, 2011
Source: http://www.mortgagefinancegazette.com/insurance/fsa-and-oft-publish-draft-guidance-on-ppi/



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19.10.2011

Australian Financial Regular ASIC’s report into consumer credit insurance (CCI) - Insurance taken out on credit cards, personal loans or mortgages to cover borrowers in the event of loss of income, death or disablement.

The Consumer Action Law Centre has responded to the ASIC study critically by saying that it confirms two of its long held suspicions; that many lenders selling CCI are using underhand or pressure tactics to sell the product, and that the industry has failed to take proactive steps to address practices identified in a number of reports and investigations over the past 20 years.

• The report highlights a range of poor selling practices including misleading customers about the optional nature of CCI, attempting to hide the cost, and selling the insurance without the borrower’s knowledge or permission. 
• Borrowers should be given a separate quote for CCI and why it should be made clear that it is optional.
•  high level of claims being rejected (ASIC’s report says that 13% of claims are denied), far higher than the level of denied personal general insurance claims (2%)
• Consumer Action is sceptical about industry groups which claim they are planning to implement ASIC’s recommendations: "The problem is CCI is too profitable, and over the years nothing has yet forced the industry to behave fairly." Lenders earn up to 20% in commissions, and earn interest by financing the premiums. Policies which make it difficult to claim are also money-spinners for the insurer.
• Suggestions: Government should ban the payment of commissions to lenders who sell this type of insurance. We may then start to see lenders considering their customers' needs rather than their own profits.

However: “While the banks and credit unions want us to believe they are committed to ethical behaviour and customer service, ASIC’s report shows that shady practices lie just below the surface.”

• FSA PPI Guidance Consultation (Nov 2011)
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• ASICS Report 256: Consumer credit insurance (ppi): A review of sellign practices (Australia, 19 October 2011)
  (336285 Bytes)