Money Box - Saturday 7th July 2001

THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE.

Tape Transcript by Sentinel Monitoring

MONEY BOX

Presenter: Paul Lewis

TRANSMISSION 7th JULY 2001 1200-1230 BBC RADIO 4

Invalid Insurance

Endowment Mortgages

Community Banking

Student Loans

LEWIS - Hello in today's programme thousands of people have worthless travel insurance but no one has warned them. The fears of millions with endowment mortgages who still don't know what to do.

WOMAN - I haven't taken action yet because I'm really worried about making another financial mistake, I don't want to have another financial disaster on my hands.

LEWIS - The banks turn their back on reopening rural branches, and the extra 9% tax on this year's university graduates.

But first, Money box has learnt that up to 35,000 people preparing for a trip abroad have invalid travel insurance and no one has told them, even though it's seven weeks since the company that provided the insurance went into liquidation and several months since it's problems became known within the industry. Returning travellers who are making claims are already in difficulty like Susie¿

SUSIE - We took out a travel insurance with Atlas Travel and we had to make a cancellation of a holiday claim because we were going to go on a safari for a honeymoon then I became pregnant and couldn't the malaria tablets so we had to cancel it. So we made our claim and quite a few weeks later we had a letter saying that although our claim was going to be valid the policy was no longer valid as a result of this we are out of pocket by £6,000, which is a fairly major loss.

LEWIS - Susie is just one of 4,000 people who are waiting for up to £2.5 million in unpaid claims made on travel insurance that's turned out to be worthless. Atlas travel was one of eight brokers, who sold the policies mainly through travel agents and tour operators, they all carry the rock solid name Lloyds of London, but now the Lloyds syndicate which was suppose to bear the risk says that it never authorised its name to be used. An agent called the Management Company London Limited which distributed the policies has gone into liquidation and the Lloyds members and their broker are going to Court over who is to blame. The hearing is on July 23rd. Meanwhile what should people do? Well with me is Steve Howard who's the Managing Director of Travel Protection Group which sold thousands of these invalid policies and who is also chairman of the Association of Insurance Intermediaries. Steve this is a mess isn't it ? What are you doing to protect customers?

HOWARD - Unfortunately it is a mess but the first thing we have to say is neither the travel agent nor the intermediaries involved have done anything wrong here. Everyone has acted in good faith in the belief that the cover was in place.

LEWIS - But somebody must have done something wrong somewhere because people are being left without cover they believed they had and had paid for.

HOWARD - Certainly their was a dispute between the placing broker at Lloyds and the Lloyds syndicate as to whether or not cover was actually put in place and that will be heard on the 23rd July.

LEWIS - and what are you doing, your own company, for the thousands of people who are still to travel

HOWARD - Those who are still to travel we have actually taken a contingency cover to re protect them to make sure there is no break in their cover, those people unfortunately who have travelled and have put in claims prior to the date of the problem unfortunately have to wait in a queue until the 23rd July and then we can resolve who is actually to blame.

LEWIS - Though, of course, that is the court case on 23rd between Lloyds and the broker but it may not be resolved then it could go to appeal couldn't it?

HOWARD - It could go to appeal and it could take a lot longer. The situation at present is that the 23rd July has been reserved by the court to hear this case because it is deemed to be in the public interest. There is another date reserved in September for action to be taken pending the outcome of that case but it could take some time to resolve. LEWIS - Now you've taken this action to protect your customers and I think one of the other brokers has definitely done that, others may have done, but we know that four of them haven't done that and they haven't even told their customers that their policies are invalid.

HOWARD - There is still a dispute whether the policies are invalid or not until the 23rd July we will not know that. And in the position of being intermediaries the intermediaries have formed an action group and the legal advice we were provided with at the beginning was that there was cover in place and that there was no need to worry clients.

LEWIS - But there are I think more than 4000 people who like our listener Susie thought they were covered but aren't, will they get their money?

HOWARD - Eventually they will get their money through one source or another, that's my personal belief

LEWIS - why aren't they covered by the policy holders protection act which pays 90% of claims, that's suppose to protect people from insurance disasters.

HOWARD - It is, but unfortunately it covers insurance companies themselves who go into liquidation and the Management Company was an underwriting agent not an insurance company and therefore it falls outside that amber.

LEWIS - But there are tens of thousands of people and nobody in the insurance industry seems to be taking responsibility , they're saying it's somebody else's fault.

HOWARD - it is a major problem. We as intermediaries and the travel agents are trying to take responsibility in attempting to re-protect the clients, but the fault unfortunately does lie further down the chain and there may be certain actions which should have been taken sooner but weren't.

LEWIS - Steve Howard thanks very much, and details of the eight brokers involved are on our web site. If you are travelling abroad and your policy bears the name Lloyds of London and was issued by one of the 8 companies you should check it out before you travel and arrange alternative cover if necessary.

LEWIS - A Labour MP is calling on the government to get tough over the mis-selling of endowment policies. Paul Flynn the Labour MP for Newport West has told Money Box that he wants a full review of the way that endowments were sold to cover mortgages. His comments come in the week that the Financial Services Authority published research indicating that many people affected do not know what to do. Paul Flynn told me that the new figures in the report were devastating.

FLYNN - The problem is truly a massive one. Four and three quarter million endowment policies sold to pay off mortgages we now know may not grow sufficiently to do so at the end of it, let alone allow people to have the lump sum the nest egg that they were expecting as well. This is a huge problem.

LEWIS - And a lot of those people though would have been told that, wouldn't they when they were sold these products

FLYNN - Well information is that 60% of the people interviewed were told that their policy was guaranteed to pay off the mortgage and all the anecdotal evidence that I get from constituencies was that they were told -' oh yes there is no problem it will pay off you mortgage and you will have a very nice sum at the end of it as a nest egg for your retirement'. So we know that nearly 3 million people were clearly mis-sold on that ground alone, but of the ones that have been compensated the number is very small - just over 10 thousand so we know that there is a great deal of compensation to be done, and the worry is that the Financial Services Authority have always been reluctant to have a full inquiry and they put up a figure which doesn't seem to be a realistic one and the threat is - as with other scandals in the financial industry - that the people that would have to foot the bill for the compensation or the inquiry are the poor customers who have actually suffered the losses anyway. So we want some clear statements by government that they are going to insist that compensation is paid at a full and realistic level and that the money comes from the companies shareholders and not from the policy holders.

LEWIS - And what are you doing as an MP to represent your constituents to get action

FLYNN - I am putting down an early emotion on Monday morning which will express these concerns and call on the government to act against the FSA, unfortunately there is a very cosy relationship between the Financial Service Authority, between the financial industry itself and I'm afraid the government department and they seem to be much more interested in keeping that cosy relationship but I'm afraid the casualties are many desperately anxious families who've lost out.

LEWIS - Paul Flynn MP, and with me is Victoria Raffé who is head of mortgage endowment at the Financial Services Authority. Victoria your research showed that 7 out of 10 people didn't know what to do or hadn't taken any action. How are you going to help them?

RAFFÉ - We have done an awful lot to help them. They have had a lot of information from the FSA, they have each had a letter from the product provider that supplies the policy, telling them whether or not they are on track to repay their mortgage. We have done an awful lot to check out current selling standards, check out historical standards and we are taking action against individual firms where we are spotting problems.

LEWIS - But the leaflet you have issued - people have to ask for it don't they? You are not sending it to everybody concerned.

RAFFÉ - Well at the moment you're right what we have is a brand new leaflet which is really good it sets out what the options are and its really worthwhile people asking for it, and that's available from our help line or our web site. It is quite possible that we will be able to encourage individual firms to send out that leaflet, we are talking to the Association of British Insurers about that and individual firms, so ¿¿..

LEWIS - Why can't you just tell them to do it - you're the regulator¿

RAFFÉ - Well you have to be careful about what powers we have at the moment and those powers aren't all encompassing, let's see when we get our new powers what we can do then, but¿..

LEWIS - The Association of British Insurers called you the provisional wing of the Consumers Association the other day¿.

RAFFÉ - Absolutely you either get accused of doing too little or doing too much you know that's life isn't it.

LEWIS - Lets move back to the people who say they were mis-sold though, leaflets are one thing but your research showed that 60% of people with endowment mortgage said they'd been promised it would pay off their mortgage. Working out a few figures that means 3 million policies were mis-sold.

RAFFÉ - There are a large number of people undoubtedly and we have never denied this. A large number of people who really genuinely thought that there policies were going to pay off their mortgage no doubt about that but remember that actually in practice an awful lot of those policies will repay the mortgage. It's I think ¿..you have to be careful ¿¿..

LEWIS - Are you not aware that 45 % are in danger of not paying it off or probably won't pay it off.

RAFFÉ - There is something like 15% at the moment that are unlikely to repay mortgages and another odd 30% which may or may not, that's the whole point of these policies. We don't know how the policies will perform in the future.

LEWIS - No we don't but Paul Flynn said there are millions of people who were promised who have probable been mis-sold and the Financial Service Authority isn't actually going out and doing anything about that. It's issuing leaflets its talking to people; you are not really going for the companies that mis-sold them.

RAFFÉ - I don't know why you say that. We have done a huge amount of work with companies and if you spoke to ¿. if you had a representative of the industry here they would be complaining that we are doing too much. It takes time to do the investigation but we will be getting companies to compensate consumers directly without them doing a thing. They will be compensated directly.

LEWIS - Not all those 3 million though?

RAFFÉ - Not all those 3 million but not all those 3 million have a claim to make, not all of those 3 million if they put in a complaint would find that they had a compensatable loss.

LEWIS - Victoria Raffe from the Financial Services Authority, thanks for talking to us, and since that research was published on Monday the BBC has received dozens of e-mails from worried listeners, anxious to know what they should do. Money Box asked some of them why they had taken no action.

MAN (1) - I so far have not done anything about this because anything could happen in the legislation between now and December 2015 and if I do have to pay all this money I would rather do it in 15 years than do it now - then it will be worth less to me in real terms.

MAN (2) - I didn't take any action because I could not afford to, I am about to retire in a couple of months time and this is going to cause even more problem for me.

WOMAN - I haven't taken action yet, cause I am really worried about making another financial mistake, I don't want to have another financial disaster on my hands.

LEWIS - Three worried listeners there, with me is Anna Bowes from Independent Financial Advisors Chase DeVere. Anna this clearly is worrying for people, there is one listener there about to retire. What can they do?

BOWES - Well the main thing to do is to make sure they do try and do something, leaving it for 15 years really could have serious affects on them. It is much easier to try and put a smaller amount away now and let that accumulate so that it can hopefully pay off the short fall.

LEWIS - And what 's the best thing to do? Because a lot of these companies are encouraging people to top up their endowments, is that just throwing good money after bad?

BOWES - Well you could say that if you've got a policy that's doing badly then possibly it's not the best idea to throw good money after bad. There are lots of other things that people can do. They could look at using up their ISA allowances, there are cash ISA allowances that are tax free savings accounts for those people who don't want to take a risk, or there are stocks or shares ISA's for people who are prepared to take a high level risk, they should get better returns over a long term.

LEWIS - And they could just increase their mortgage payments so that there will be less of a debt at the end, so the endowment might cover it.

BOWES - Absolutely, they can increase their mortgage, the other thing they can do of course is to look to re-mortgage. With interest rates falling they may well be able to make savings on their mortgage. As for that chap who couldn't afford to make any further payments, if he re-mortgages potentially he'll save money and he can then pay that into a repayment mortgage so that the problem will hopefully be alleviated.

LEWIS - Now the FSA research also found that a small proposition of people had cashed in or sold their endowment policies. Is that a good idea?

BOWES - It really isn't a good idea. The whole point of an endowment policy is at the end of the term you're likely to get a large terminal bonus from the policy, if you cash it in early you will not get that, so the best thing to try and do is to keep that going and make other saving elsewhere.

LEWIS - and I suppose read and inwardly digest the letters that are being sent to you by the insurance companies. Anna Bowes from Chase DeVere thanks for talking to us.

People living in communities where all the bank branches have been closed have had their hopes of getting them re-opened dashed this week. Money Box reported in April on the plight of businesses in the small Bedfordshire town of Stotfold. The only bank in the town was Barclays and when that was shut as part of the banks cost saving closure of a 170 rural branches they were hoping that it might be re-opened as a shared bank running services for all the banks in one building. Local trader Ian Boscul told us in April he'd would welcome such a move to avoid a bus trip to the bank in the next town.

BOSCUL - I think it would be excellent. I'm sure there is a lot of people in particularly in the small businesses in Stotfold would welcome it. Even if its not next door at least its within the same town, and you are only away from you business for a few minutes to attend to things rather than this trek across the county to do what you need to do.

LEWIS - People in Stotfold were encouraged when Barclays withdrew the building from auction pending a report by the British Bankers Association into Banks sharing a single building, but now this idea is dead. The long awaited report by the banking industry has ruled out re-opening branches, which have already been closed. That's particularly galling to Derek French who's Director of the Pressure Group campaigning for community banking. He's in Luton. Derek how do you react to this?

FRENCH - Well very, very disappointed at the scale and scope of this pilot that the big banks have come up with after 12 month work, 2 university studies and nearly four years of discussion it does very little if anything for the type of community you describe.

LEWIS - What would you have liked them to say?

FRENCH - Well we wanted them to have a sensible pilot scheme covering all types of community and by that we mean urban communities, some closed branches, some branches that are open. What they have come up with is only ten locations to be chosen by the banks themselves with no consultation, no suburban or inner-city locations nothing under a 10 mile return trip to the bank and no bank-less communities as you pointed out no testing of the neutral branch.

LEWIS - Goodness you are unhappy. Well fortunately listening to that is Chris Rawling from the British Bankers Association, he is the executive there in charge of this project. Chris you've really disappointed people.

RAWLING - Well I'm sorry I don't think we have. The Banks have announced in all good faith that we do take these issues seriously. We have listened to what people such as Derek French has told us and last week we announced that we were running a pilot for the full 12 months of 2002 and the pilot has three objectives one is to gauge consumer demands for these types of services, to measure consumer behaviour and also to test the mechanics of the banks co-operating with each other.

LEWIS - But you're not going to reopen any branches so where they have already all gone as in Stotfold and other places that's just it , it's just too bad.

RAWLING - Well reopening branches is not part of the pilot - no, but the pilot has the three objectives that I described. We will be collating statistics during the whole of the period and at the end of the pilot period looking at the results seeing if there is consumer needs and consumer demand for these services and taking a sensible view as to the best way forward.

LEWIS - Well I don't think that there is much doubt about the consumer need or demand. Just explain how the pilots will work if somebody lives in one of these ten places. What will they see?

RAWLING - What they will see, where there is one branch of the old big four banks left - Nat West, Lloyds. HBC, Barclays- but only one branch within the five mile radius. In the ten locations small businesses and personal customers will be contacted and they will be told that they can use the branch of a bank other than their own free of charge.

LEWIS - But that will only be customers of those big old four banks?

RAWLING - Of those big old four banks, but those big old four banks between them have most of the current accounts in this country and as I said we are running a pilot without any foregone conclusions to just test whether or not there is demand for these services.

LEWIS - So Derek French at least they are doing something

FRENCH - Yeah they are doing something, I mean it's a very small step forward and I suppose we should be grateful for small mercies from the banking industry, but it's unrepresentative and its potentially misleading pilot scheme and yet so much depends on it.

LEWIS - Misleading - Why?

FRENCH - Misleading because a significant number of types of community, and indeed recently closed branches, are excluded from it and the selection of even the very modest number of ten locations we have been told by the banking representatives will be done without any consultation with the consumer groups such as ourselves and we represent twenty six of the largest consumer groups in the country who are concerned about this issue.

LEWIS - Chris Rawling, too little and its going to take too long.

RAWLING - Well it won't take too long, it does take time to operationally put these type of pilots in place. We will be running it for a full 12 month period and collating as I said all the statistics which will just demonstrate whether or not there is a need for these services.

LEWIS - Chris Rawling from the Bankers Association and Derek French from the Campaign for Community Banking. Thanks to you both.

LEWIS - Two hundred thousand final year university students in England and Wales may still be waiting anxiously to find out what sort of degree they have been awarded, but another equally important brown envelope will be dropping through their doors in a few weeks time because this year's graduates are the first who will be repaying their student loan through the tax system. Martin Lewis has been investigating.

M LEWIS - Graduates who started studying before the 1st September 1998 begin repaying their student loans once their annual salaries are little more than £19,000. Those who started after that date pay once they are earning just £10,000- not much more than the minimum wage. The changes don't stop there -the amount paid each month and the method of collection are different too. It's now to be collected like a tax by the Inland Revenue through employers. A system expected to lead to less defaults. Eric Osman the operations director of the student loans company says it will run to a strict timetable.

OSMAN - In August/September we will send a statement showing the balance of your account. In October we'll advise Inland Revenue that you are due to repay. In November a further letter will be sent to you explaining how much is due and that we have told the Inland Revenue. They will then instruct the employer to deduct a rate of 9% of a salary, which is over £10,000 per annum.

M LEWIS - repayments begins in the April following graduation and last until the loan plus interest of the rate of inflation is paid off - though self-employed students will pay via self-assessment. The deductions are equivalent to 9% of anything earned above £10,000 - so at £11,000 a year its 9% of a £1,000 or £90 for the year. At the average graduates salary of £19,000 the maximum £12,000 loan plus interest would take 17 years to pay off. The old system isn't being disbanded yet those who started university before 1988 still repay only once their salary is above £19,000. The amount paid each month there depends on the size of the loan, not on earnings. I went to the Royal Academy of Music to see if 3rd year students with maximum loans knew about the new system.

WOMAN - I think you have to earn over £16,000 and then it comes out of your National Insurance back to the government basically. I don't know how often I think it every month? - maybe.

MAN - I think you have to earn over a certain amount when you leave University to be able to pay a certain amount back gradually.

WOMAN - I thought we had to earn over £10,000 and I assume it came out monthly to the student loans company, but I'm not sure either.

M LEWIS - The current crop of graduates will soon discover the truth. Though the National Union of Students campaigns against debt levels and the lack of financial help it's President Owen James says they support the method of collection, if not the amount collected.

JAMES - The gradual repayment is definitely an improvement. What people are arguing is that people should be able to borrow money to fund their education, when they have benefited from that education they should contribute to the cost of it. If you are going to go down that principal then you clearly need to set the threshold at a higher figure than £10,000 otherwise what you are saying is as soon as you've graduated whatever job you get you are going to have to start paying that money.

M LEWIS - this he believes will not help the number of university applications, he's also concerned about whether the introduction of the new system will go as smoothly as planned.

JAMES - We need to ensure that the transition is smooth and that the new system is clear to all people concerned. One of the biggest problems we've seen in the public sector with the student loans company a couple of years ago but also with the passport fiasco is that when new systems are being introduced huge problems can occur.

M LEWIS - Although small-scale repayments are underway by those students who dropped out early or took short courses. Come next April when 200,000 graduates enter the system we'll see if the Student Loans Company, the Inland Revenue and employers can cope.

P LEWIS - Martin Lewis - and student finances will be the topic of our phone in Money Box live on Monday which will cover debt, saving up and the best deals on student bank accounts, and Martin Lewis is with me here with some other money news. Martin - Friends Provident Policy holders who are waiting for their windfall shares know the price now and can see them traded on the Stock Market on Monday.

M LEWIS - Yes friends have set a price of £2.25 that means anyone with a standard 200 free shares gain a windfall worth £450. Nearly half of friend's members have opted to cash in their shares at this price when the market opens. Unfortunately for those left this means a possible glut of shares and some city pundits predict the price will drop when trading start.

P LEWIS - And when will people get their cheques of share certificates?

M LEWIS - They should be being sent out on Monday week, the 16th July.

P LEWIS - And the Bank of England decided to keep interest rates steady this week but some new mortgage rates may be rising.

M LEWIS - Yes - though variable mortgage rate moves with the bank base rate, new fix rate mortgage rate depends on long term interest rates set by the city and that's gone up three quarters of a per centage point over the last four months, and fixed rate mortgages are rising to. Birmingham Midshires and Abbey National have increased their fixed rate twice this month.

P LEWIS - Thanks for that Martin, that's all we have time for today, if you would like more information about any of the items on today's programme including the names of the travel insurance brokers affected by the collapse of the Management Company you can call the BBC Action Line on 080044044 calls are free 0800044044 , or of course you can look at our Web Site www.bbc.co.uk/moneybox. As I said, I'm back on Monday with our phone in Money Box Live on Student Finance, our e-mail is [e-mail] and I'm back with Money Box same time next week. Today the reporter was Martin Lewis, the producer was Penny Haslem and I'm Paul Lewis.

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