Page last updated at 16:03 GMT, Monday, 15 December 2008

Progress on PPI 'disappointing'

Hector Sants
Mr Sants told MPs that financial firms had been too slow to improve PPI sales

Financial services companies have been too slow to stop mis-selling payment protection insurance (PPI), said the Financial Services Authority (FSA).

"Progress made by firms in sorting out the issue has been disappointing," said Hector Sants, FSA chief executive.

PPI policies are supposed to provide cover if someone cannot repay loans and credit card bills because of illness, an accident or unemployment.

Mr Sants was answering questions from the Parliamentary treasury committee.

He pointed out that 20 firms had been fined about 12m, as part of the FSA's crackdown on mis-selling.

But he acknowledged that progress had not been quick enough.

"We do agree that firms altering their behaviour has been slow," Mr Sants told the Parliamentary Treasury committee.

Protection racket

Consumer groups have spent several years campaigning against the sale of PPI. Last week, the Financial Ombudsman Service (FOS) revealed that it was being deluged with complaints about it.

So far this year, it has received 25,000 PPI complaints, making the insurance easily the biggest single source of public grievances.

Selling the policies has been highly profitable for banks, but campaigners have said their sale is little more than a protection racket, with consumers often being sold policies they do not need and on which they often cannot claim.

The authorities increasingly agree.

Last week, credit card firm Egg was fined 721,000 and was told it had to compensate customers who had been mis-sold the PPI.

If every customer lodges a claim for the return of their premiums, it could cost Egg nearly 17m.

Earlier this year, the Alliance and Leicester bank was fined a record 7m for putting pressure on customers to buy PPI unnecessarily.

Dan Waters, an FSA director, told the MPs that financial firms were finally getting the message.

"The handwriting is on the wall," he told the MPs.

Restriction

The sale of PPI is now likely to be severely restricted following draft proposals from the Competition Commission.

Last month, it said banks and others should be banned from selling the insurance within 14 days of also granting a customer a loan.

This would break the near-monopoly that financial firms have in selling PPI at the point at which they make loans.

The commission's research had previously suggested that banks and other financial institutions, such as credit card providers, had made excess profits of 1.4bn on PPI sales in 2006.

In October, the FSA warned it would step up its campaign of reprimands and fines.

A mystery shopping exercise for the regulator found that despite previous warnings from it, customers regularly were still not given the full details of the policies they were buying.

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SEE ALSO
Loan insurance is 'biggest gripe'
12 Dec 08 |  Business
Egg fined over insurance sales
10 Dec 08 |  Business
Catalogue sales face PPI checks
21 Nov 08 |  Business
Loan insurance 'delay' proposed
13 Nov 08 |  Business
Record fine for PPI mis-selling
07 Oct 08 |  Business
Crackdown on mis-selling of PPI
01 Oct 08 |  Business

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