Page last updated at 12:42 GMT, Wednesday, 10 September 2008 13:42 UK

PPI sales face new restrictions

By Ian Pollock
Personal finance reporter, BBC News

FSA headquarters
The FSA's executive board meets to consider PPI later this month

The Financial Ombudsman Service (FOS) has called on regulators to take more action to stop the mis-selling of Payment Protection Insurance (PPI).

This year the FOS has been deluged with complaints about mis-sold PPI policies, and is upholding the majority of them.

A spokesman said the FOS had "very severe concerns" that complainants were being fobbed off by banks.

The Financial Services Authority will consider the FOS's request at its board meeting later this month.

"PPI complaints have risen 10-fold in the past two years, and are now about 25% of all the complaints we get," said an FOS spokesman.

Huge rise

The ombudsman is currently receiving more than 500 complaints a week about PPI policies, which are typically sold by banks when they make a loan to a customer.

PPI complaints have risen ten-fold in the past two years, and are now about 25% of all the complaints we get
FOS spokesman

The insurance is supposed to cover someone in the event that they fall ill or lose their job and cannot repay a loan, credit card bill, or mortgage.

But consumer organisations have criticised the insurance as useless and little more than a profitable protection racket for the banking industry.

Earlier the consumers organisation Which? reported that 1.3 million people had bought PPI when taking out a credit card, under the mistaken belief that it was compulsory or would improve their chances of having their application approved.

But a spokesman for the British Bankers' Association (BBA) has said action by the FSA is unnecessary.

"The financial services industry agrees that it is in the interests of customers to deal quickly and consistently with genuine complaints," he said.

"But we do not agree that a regulatory response is needed to achieve this.

"Presently, the industry is actively working to determine the best way to handle PPI complaints across all providers consistently and efficiently," he added.

Consumer detriment

The Ombudsman has written to the FSA saying it believes the complaints are now so widespread that it has spotted a "trend to consumer detriment", which has "wider implications."

FSA website
The FSA offers advice to consumers on buying PPI policies

The spokesman said the FOS was particularly worried that banks and other organisations in the financial services industry were failing to deal with initial PPI complaints properly.

"We are particularly concerned that firms should have a very good idea of how we deal with unresolved complaints but they are still coming through," he said.

"The complaints are so similar to those we have already settled in consumers' favour that we are worried that firms are not learning the lessons from this and are not treating customers fairly," he added.

Citizens Advice, which first lodged a formal "super complaint" about PPI three years ago, said it was not surprised by the experience of the FOS.

"We are still seeing cases where PPI is sold improperly, despite the FSA's new rules on PPI sales," said Sue Edwards of Citizens Advice.

"Many of these cases involve High Street banks and credit card companies," she said.

The FOS has already had extensive discussions with the banking industry, but is worried that organisations that sell PPI are "not getting the message."

One bank, RBS/NatWest, has responded to the FOS's approach to the FSA by changing its attitude to dealing with customer complaints about PPI.

According to an internal bank memo, dated 22 August, the bank decided "at Group Senior Executive level to reduce the volume of complaints going to FOS" to demonstrate to the FSA and FOS that their concerns have been taken on board.

Tighter rules

The Ombudsman has not asked for specific measures to be taken by the FSA.

We are highly aware of the issues in the PPI market
FSA spokesman

But its call is likely to prompt further action by the regulator, which has already been undertaking a long investigation into the way PPI is sold.

The FSA has already fined or censured 18 firms or individuals for mis-selling the insurance.

Its investigation, which is now in its third phase, will come to fruition in the next few months and may lead to further restrictions on the way PPI is sold.

"We are highly aware of the issues in the PPI market," said an FSA spokesman.

Doug Taylor of Which? encouraged the FSA to take action.

"There clearly is a big problem with PPI, and the FSA should use its rules to stamp out bad practice," he said.

Earlier this year the regulator introduced tougher rules on how PPI could be sold.

And in June the Competition Commission concluded that banks and credit card companies were overcharging their PPI customers by 1.4bn a year.

It blamed at lack of competition at the point of sale when people took out a loan, and suggested that selling PPI at the same time as approving a loan might be banned.

The commission will make its final recommendations in November or December.

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