Julian Knight: 'Mis-selling' is the word – be bold enough to use it

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It was déjà vu last Wednesday when the Financial Services Authority (FSA) released its findings from a "mystery shop" of payment protection insurance providers. PPI is designed to meet the loan if you can't repay it due, say, to injury or losing your job.

The mystery shoppers found PPI providers were not "treating customers fairly" – which is FSA jargon for mis-selling. It means people are being sold PPI who ought not to be.

I have never understood the appeal of PPI. By taking out insurance for a loan, the borrower is basically protecting the lender. OK, if the repayments are taken care of, but that does nothing to solve the central problem of how he or she is going to be able to afford to live. In other words, the bank gets its pound of flesh but the borrower is still flat broke. What's more, PPI is often sold with unsecured loans, which means that the risk of default is already priced into the deal. So by taking out PPI on top, the borrower is in essence paying double.

Add to this the point that PPI has often been sold in the past to self-employed people, who can be barred from making a claim, and it doesn't take a genius to work out that PPI is simply a rank bad deal.

Following its mystery shop, Clive Briault, the FSA's managing director, promised enforcement action. And this is where the déjà vu kicks in. At the start of the year, the regulator embarked on a PPI crackdown: according to briefings given to journalists, up to 10 firms were in line for heavy fines. Eventually, however, just five firms were fined a combined £1.5m. Sound like a big number? Not when you set it against the estimated £5bn PPI market.

The truth is that PPI providers got off lightly last time. The FSA wouldn't even brand what were clear instances of mis-selling as such. In January, GE Capital was fined £610,000 (including a 30 per cent "discount" for owning up at an early stage of the inquiry) for failing to "review, amend and then operate its sale procedures to ensure that all customers received adequate information... before they made a decision on whether to take insurance". That's mis-selling to you and me.

The best part of a year later and little seems to have changed with PPI. So when Mr Briault and his team discuss what to do next, they must consider bigger fines, ending discounts for early co-operation, reviewing terms and conditions across the industry to make them fairer, and calling a spade a spade – actually using the word "mis-selling"'. Otherwise, déjà vu will strike again and again.

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