The Financial Services Authority ("FSA") has issued a consultation paper [CP09/23] setting out its proposals for:
- guidance on the fair assessment and (where appropriate) redress of complaints related to sales of payment protection insurance ("PPI"); and
- rules requiring firms to reassess complaints received since 14th January 2005 about PPI sales that the firm had previously rejected.
The consultation period will close on 30th October, after which the FSA will finalise its proposals.
The FSA accepts that PPI has an important role in protecting consumers' repayments, particularly in the current economic climate. In its view, it is therefore all the more vital that a consumer is only sold a policy which does what they want and meets their actual needs. Concerns expressed about PPI sales have prompted many consumers to consider the PPI that was sold to them and, in many cases, to complain to the firm that sold it to them. According to data provided to the FSA by firms, 158,000 PPI complaints were received in 2008 alone.
The FSA considers it is vital that firms deal with these complaints fairly. The FSA does not currently have confidence that firms are doing this.
On average, firms have rejected around 60% of PPI complaints received. One effect of this has been a substantial increase in the number of PPI complaints referred to the Financial Ombudsman Service ("FOS"). FOS has overturned, in favour of the complainant, firms' decisions on over 80% of the PPI complaints reaching it.
Addressing Current Complaints
The FSA is proposing broad guidance on assessing PPI complaints and considering evidence about them. The consultation sets out the guidance in detail.
Receipt by a firm of a PPI complaint should be seen as raising an initial concern that things did not go according to procedure or script, or that these were themselves faulty, and it is that concern which needs to be taken seriously by the firm. Accordingly, the firm should investigate the complaint, collect information, assess the evidence and reach a conclusion, with all this done in a fair and balanced way that gives due weight to accounts and evidence from each side, and due allowance to areas of genuine uncertainty and divergence.
The basic approach proposed is for the firm assessing the PPI complaint to:
- consider whether it failed to comply with the FSA rules or was otherwise in breach of its duty of care when selling the policy; and
- assess whether, if it were not for such failings the consumer would have taken a different course of action.
So that:
- where the firm considers that the consumer would not have bought a policy sold and would not in all probability have purchased any alternative policy, the firm should cancel the policy and return the sum of premiums and any interest on premiums paid. Where necessary, the firm should restructure the loan as if the policy had never been taken out; or
- for single premium policies, where the firm considers that the consumer would not have bought the policy sold, but would in all probability have purchased an alternative regular premium policy, the firm should calculate what the consumer would have paid so far using a comparator figure imposed by the FSA, refund the difference between this and what was actually paid in terms of premium and interest, and restructure the loan.
The PPI Complaints Review Rule
The FSA is concerned that many rejected PPI complaints may not have received fair investigation or consideration and deserve reassessment in accordance with the proposed new guidance. The review rule will apply to those PPI complaints that:
- fall under the scope of the proposed guidance;
- were received after 14th January 2005; and
- were rejected by the firm (but have not been referred to FOS nor settled by the firm on a full and final settlement basis).
In these circumstances, firms must pro-actively reassess all such complaints in accordance with the proposed guidance and then promptly provide a final response to the consumer. This should set out a reassessment and resulting decision, and make clear that the consumer has six months to refer their case to FOS if they remain dissatisfied.
Mortgage Payment Protection Insurance
The FSA intends to exclude from the above policies, mortgage payment protection insurance complaints that relate solely to unfair variation terms, and/or inadequately disclosed variation and/or cancellation terms.
Points of Concern
- The retrospective review is to extend to January 2005; however the FSA's own rules provide for complaint files to be held for three years only.
- If a firm that organised the sale of PPI insurance is no longer trading, to what extent, if any, is a lender providing loan facilities to purchase the policy, but not arranging the sale, required to investigate, reassess or make restitution?
- The FSA indicates that loans funding PPI policies may need to be restructured. For loans, financing such premiums regulated by the Consumer Credit Act 1974, will a modifying agreement need to be executed?
How we can help
- We can provide expert help on documenting agreements where payments are restructured.
- We can give expert advice on liabilities and what you will be responsible for.
- We can advise on procedures and requirements for the fair assessment of complaints.
- We can provide volume processing legal facilities to assist you in reviewing and responding on large volumes of previously rejected complaints in a short time frame.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.