Simon Burgess, managing director of independent payment protection insurance provider, British Insurance
, welcomes the actions of the regulator, the Financial Services Authority:
"After wave upon wave of criticism action is finally being taken against firms that are failing to treat their customers fairly over PPI. Once firms realise that the regulator will not tolerate these practices and that being caught will cost them hundreds of thousands of pounds then they will soon reassess how they operate. Action is now beginning to follow the criticism that has for so long dogged the payment protection insurance (PPI) market. The true cost of mis-selling PPI is finally hitting home with the Financial Services Authority slapping Loans.co.uk with a £455,000 fine. Loans.co.uk did not have adequate systems in place to prevent inappropriate sales of the insurance to clients and failed to collect and record enough information to demonstrate that the policy commendations made were suitable. Loans.co.uk is the second firm in the PPI sector to be sanctioned by the FSA in recent weeks, following the £56,000 fine that was handed down to Regency Mortgage Corporation at the beginning of September for the mis-selling of MPPI.
"Both cases clearly show the FSA is now talking a firmer stance on practices within the market and is not prepared to tolerate the poor treatment of customers that has become a characteristic of many providers and distributors in this sector. For any firms that thought the FSA's bark was worse than its bite, the recent fines in this market show they have to take their responsibility to clients seriously or face significant financial penalty. Hitting commercial firms in the wallet is the most effective way to make them sit up and take notice."
The fine follows the publication of a recent report by the Office of Fair Trading, which has prompted it to refer the market to the Competition Commission for further investigation. Earlier this month the FSA also issued the findings of a report
into the market which found customers were not in many instances being treated fairly.
Simon Burgess adds: "There is no shortage of problems in this market, but now strong action is being taken we can hopefully begin to move to an environment where customers get the insurance they need at a price that offers the kind of value they expect. PPI is a valuable product and it is good to see the worst practices, which are dragging the whole market down being singled out and punished. The level of fine involved means that firms simply cannot afford to ignore their responsibilities any more."
British Insurance provides a comparison between independently bought PPI policies and ones from lenders;
A policy to protect a £10,000 loan over 5 years with an average monthly repayment of £233 would cost £300 or £60 per annum from British Insurance. This compares to an average cost from the top ten loan providers of £3084 (£617 per annum) or £3585 (£717 per annum) from Royal Bank of Scotland the most expensive lender.
A policy to protect a monthly mortgage payment of £500 mortgage over 25 years would cost £3000 or £120 per annum with British Insurance. This compares with an average cost from the top ten lenders of £8900
Payment Protection Insurance : News update: November 2006