The Financial Services Authority yesterday unveiled the latest stage of its crackdown on the payment protection insurance sector, publicly censuring two companies for mis-selling the cover.
The regulator announced it had fined Redcats Ltd, a home shopping specialist, £270,000 for failing to treat customers fairly when selling payment protection insurance (PPI). The FSA also named and shamed Eastern Western Motor Group for similar failings, though the car dealer escaped a financial penalty.
Financial regulators have become increasingly concerned about sales of PPI policies, which are supposed to cover the cost of repaying mortgages, loans and other debts in the event that the borrower falls or ill or becomes unemployed. Consumer groups have attacked the insurance as over-priced and warned that policies are routinely sold to consumers for whom it is not suitable. Research from the personal finance analyst Defaqto suggests that PPI for a £10,000 unsecured loan over five years would cost an average of £2,316 from high-street lenders, compared to just £245 from specialist providers.
In October, the Office of Fair Trading referred leading PPI providers to the Competition Commission, which will next year investigate the market. Between 6.5 million and 7.5 million PPI policies worth around £5.5bn are sold every year.
The FSA is also investigating the sector and is due to announce next year whether new rules are necessary to prevent abuses.
In the meantime, the regulator has been targeting providers of PPI much more aggressively. Last month, it imposed a £500,000 fine on Loans.co.uk, an online unsecured lender, for PPI-related failures, and several other companies have been given public warnings about their sales standards.
In yesterday's cases, the FSA said Redcats had not put proper systems in place to prevent unsuitable sales of PPI. The company, which sells products from catalogues by phone and online, also offers instalment payment plans, and sells PPI to customers spreading the cost of purchases in this way.
The FSA said more than 160,000 Redcats customers had been put at risk of buying unsuitable insurance over an 18-month period. Many customers did not receive proper information about the terms and conditions of their cover, even though the company claimed to be offering advice on the insurance.
The case against Eastern Western Motor Group was less serious, though the FSA said it had failed to properly explain to customers how much they would pay in total for PPI.Reuse content