The Finance Services Authorities (FSA) and the Office of Fair Trading (OFT) have issued a joint warning to financial services companies against coming up with new types of payment protection insurance (PPI) policies.
PPI policies were sold to people who had mortgages, loans or credit cards. These policies were mainly sold by the banks, but some other firms had been selling them too.
The authorities have indicated that they will be monitoring finance firms for any new and potentially damaging PPI policies that may emerge. They have also indicated that they will use their powers to prevent these loan insurance policies from being sold if they are found to be damaging to customers’ interests.
Earlier this year, the banks were defeated in the High Court over the mis-selling of PPI policies.
This has led to them having to set aside over £6 billion in compensation payments to people who they mis-sold the insurance to.
The current clampdown on these types of policies is expected to represents billions of pounds worth of lost income to the banks and other types of finance firms who mis-sold the insurance.
The FSA and the OFT have indicated that they are concerned that the fincancial services companies will simply create some new PPI style policies in an attempt to regain the financial losses that they have sustained. This could potentially mislead more customers into purchasing some policies that they do not need, or insurance that doesn’t protect them.
The PPI scandal and other previous scandals have forced the financial authorities into a tougher stance over any potential wrongdoing. They are now looking to be more proactive in preventing any problems from starting, rather than being left to clean up problems afterwards.
The FSA and OFT are expected to issue some new guidance over these types of policies and have been undergoing a consultation over their proposals.
The consultation has raised several concerns that the authorities have regarding the firms and policies. They are concerned that people are not being identified correctly in the selling of PPI insurance. They also suggest that many policies do not actually meet the customer’s needs and the payouts from a successful claim may also be insufficient. The authorities have also suggested that the policies are too complex and difficult to compare on the market.
A spokesperson for the FSA said: “This is a key time as the market shifts away from PPI and firms begin to develop new products or product features – such as short-term income protection or debt freeze or debt waiver as elements of a credit agreement or mortgage.”
The FSA is also due to be replaced with the Financial Control Authority (FCA) and the current head of the FSA, Lord Turner, has warned that it is vital that the FCA has the powers it needs to be responsible for consumer protection. This would include the ability to ban financial products.
Lord Turner also pointed out that the financial services market has the greatest potential to rip people off and the consequences could carry more significance than other areas of the economy.