New FSA probe into debt insurance

Over the coming six months, the FSA, or Financial Services Authority, said it will carry out checks to improve sales standards of firms that provide PPIs.

So far the regulator has taken enforcement action against 10 firms.

PPIs are meant to pay out if someone loses their job or falls ill and is unable to repay loans or mortgages.

"Customers should come away from the sale having been given the best possible chance of understanding that PPI is almost always optional, what the policy will and will not cover, and how much it costs," said Clive Briault of the FSA.

"Improving sales standards in the PPI market remains a key priority for us and we see it as an indicator of whether firms are treating their customers fairly."

The FSA also said it may tighten up the rules on selling PPI policies as it is not convinced that customers are getting enough protection.

Protection racket?

The selling of PPI polices, which has been particularly profitable for firms such as banks, has been described by consumer groups as little more than a protection racket.

"The next phase of our programme will tell us what progress has been made and what further action is necessary"
Clive Briault, FSA

The UK's £5bn protection racket

Last year, the Office of Fair Trading (OFT) spent five months investigating the PPI market.

It concluded that the policies often failed consumer, saying that they were a "poor deal" and often provided less protection than many people thought.

Recently three firms - Regency, Loans.co.uk, and Redcats - were fined by the FSA for mis-selling the policies.

The FSA said its staff will also now look at companies for which PPI sales are a small part of their main business.

This will involve mystery shopping, visits to company's branches, and the following up of firms that have already been found using poor sales techniques.

Advice

The FSA's advice to consumers is that they should:

• be told that PPI is optional, where this is the case.
• receive clear information about the product and what it will cost.
• be told clearly what they are eligible for under the policy and what the exclusions are.
• where advice is given, be recommended a policy that meets their needs.
• be offered a fair refund if they cancel their policy.

The FSA has already carried out two rounds of company visits in the past 18 months.

By the end of its next round of activity it hopes to have visited more than 200 firms.

"The next phase of our programme will tell us what progress has been made and what further action is necessary," said Mr Briault.

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