Page last updated at 13:18 GMT, Thursday, 21 August 2008 14:18 UK

Car dealers fined over insurance

Cars on a forecourt
The FSA is scrutinising all sellers of PPI

Five motor dealerships have been fined by the Financial Services Authority (FSA) for mis-selling payment protection insurance (PPI).

Between them the five were fined a total of 175,000.

The FSA said there had been "serious breaches" of the rules and that 2,175 customers had been put at risk of buying polices that were unsuitable.

PPI was sold so that people could repay their car loans if they fell sick or lost their jobs.

"Motor retailers that sell PPI have to meet the same standards as the rest of the financial services industry," said Margaret Cole of the FSA.

"All firms selling PPI must treat their customers fairly, including taking proper steps to make sure sales are suitable and customers are eligible to claim on the policy," she added.

The five dealerships are GK Group, George White Motors, Ringways Garages (Leeds), Ringways Garages (Doncaster), and Park's of Hamilton.

The FSA said they had failed to check if the customers circumstances meant they might be excluded from claiming on a policy after it had been sold, and did not monitor the quality of advice being given by their sales staff.

'Protection racket'

The FSA took up problems with the sale of PPI three years ago.

At the time the consumer organisation Citizens Advice dubbed the sale of PPI policies a "protection racket", saying they were often too expensive and failed to provide the level of cover that customers thought they were getting.

This was followed by investigations by both the Office of Fair Trading and the Competition Commission.

Since 2006 the FSA has fined 11 firms and censured two motor dealerships as part of its campaign to stop people being sold policies when they are either unnecessary, not explained properly, or sneaked into the cost of a loan without the customer realising.

In June this year the Competition Commission found that people were being overcharged by the financial services industry to the tune of 1.4bn a year when they PPI policies.

It said this was due to a lack of competition, and suggested that one remedy might be a ban on firms selling the insurance when they take out loans.

The wider publicity being given to the problems of PPI led earlier this year to the Financial Ombudsman Service receiving a surge of complaints about alleged mis-selling.

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