Thousands of borrowers are in line for compensation of hundreds of pounds each after the financial regulator ordered banks to re-open 185,000 complaints about redundancy and illness insurance.
Losing patience with routine mis-selling of payment protection insurance (PPI), the Financial Services Authority announced yesterday that all complaints from personal loan customers since July 2007 about single premium PPI would have to be looked at afresh, alongside stronger rules regulating current sales.
As reported in The Independent last year, hundreds of thousands of customers are thought to have been mis-sold PPI, commonly known as redundancy or sickness cover. Policies are meant to cover payments for loans, credit cards or mortgages in the event of redundancy or illness but many borrowers had no idea they were taking out a policy, were pressurised into doing so, or would have been unable to claim because they had a pre-existing medical condition or were self-employed.
The FSA, which has fined 22 financial firms for their role in the mis-selling, including a £7m fine against Alliance & Leicester last October, said it was cracking down on personal loan providers because they were the greatest concern. Firms representing more than 40 per cent of face-to-face sales of single premium PPI policies – lump sum insurance paid at the start of a loan – have agreed to review their previous sales and redress any consumers at risk of having been mis-sold.
Separately, a new rule will require firms to reopen some 185,000 previously rejected PPI complaints and reassess them against the new tougher sales rules. The FSA acted after finding that few customers were successful in the PPI complaints they made to loan companies. On average, it said, firms rejected around 60 per cent of PPI complaints and some firms rejected nearly all complaints. However of the 16 per cent of borrowers who took their rejected complaints to the Financial Ombudsman Services, over 80 per cent won their cases.
Warning that the FSA had lost patience with PPI providers, Jon Pain, FSA managing director of retail markets, said: "It is unacceptable that despite previous warnings about poor sales practices the PPI sector still needs the FSA to intervene on this. This is the last chance for the industry to show that it can act fairly, consistently and in the best interest of consumers."
Louise Hanson, head of campaigns at Which?, said the FSA should have gone further. She said: "Unless big fines are levied, businesses will keep on unfairly dismissing complaints, safe in the knowledge that if they get caught, all they'll have to do is go back and look at them again."
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