PPI undertakings and statements
We have received a number of undertakings and statements from firms in relation to their PPI contracts who have agreed to provide consumers with refunds if they repay their loan early (but outside the statutory cancellation period).
Undertaking from Norwich Union Insurance
This agreement illustrates the need for firms to consider carefully whether any term which prevents a consumer from recovering any proportion of the single premium he has paid under the PPI policy, in the event that the loan is repaid early, is fair under the Regulations. Norwich Union had already identified this issue and amended its practice and so was fully cooperative in agreeing the undertaking.
Undertaking from AmTrust International Underwriters
The policy contained a term which stated that customers were not given any refund of the single premium after the statutory cancellation period even if they repaid the associated loan early.
Amtrust has agreed to amend the term. It will now offer a pro-rata refund of premiums after the statutory cancellation period if consumers repay their loan early.
Statement from St. Andrew's Insurance
St Andrew's told us that in practice, it has always had a policy to provide refunds if consumers repaid the loan early. However, due to a drafting error in 2005, the policy wording did not reflect this. They have since corrected the policy wording and continue to apply the corrected term in practice to existing customers.
Why we publish undertakings
We have published details of how these firms have amended their contracts so that, as part of their risk management, firms that have not themselves given an undertaking should remain alert to undertakings concerning other firms, since these will be of potential value in indicating the likely attitude of the courts, the FSA, the Office of Fair Trading or other qualifying bodies to similar terms or terms with similar effects.
Undertakings and statements in detail
Undertaking from Norwich Union Insurance
June 2006
We reviewed two PPI policies sold from June 2004 to January 2005 that Norwich Union provided. These were the Open + Direct Creditcover – PPI policies, insuring against life, accident, sickness and unemployment; and against life, hospitalisation and personal accident.
These policies contained a cancellation term which stated that if consumers repaid their loan early, they would not be given any refund of the single premium paid for their PPI policy. See the original term.1
The firm decided to stop including the term in its policies from January 2005 and consumers who take out policies from this date will be given partial refunds of the single premium paid for their PPI policy if they repay their loan early or decide to cancel the policy even if the loan is outstanding. See the amended term.2
Whilst the original cancellation term is no longer used in policies entered into after January 2005 it still exists in some policies entered into in the seven months before then. Therefore Norwich Union has agreed not to rely on the original term in existing PPI policies. It has agreed to apply the term used in policies since January 2005 in practice for customers who signed a PPI policy before January 2005 and cancel from 1st May 2006. Norwich Union will inform those customers affected by these policies.
We noted that its PPI policies available for new customers contained terms which allow consumers to receive a refund if they settle the loan early or if they decide to cancel their PPI policy.
Norwich Union was fully cooperative in agreeing this undertaking.
Undertaking from AmTrust International Underwriters
June 2006
We reviewed a PPI policy distributed and sold under Motor Direct plc but underwritten by Amtrust International Underwriters Ltd. This was the Car Protect – Payment Protection Plan.
The policy we reviewed contained a term which stated that customers were not given any refund of the single premium after the statutory cancellation period even if they repaid the associated loan early. See the original term.3
Amtrust has agreed to amend the term in new policies issued since 1 March 2006. It will now offer a pro-rata refund of premiums after the statutory cancellation period if consumers repay their loan early See the amended term. 4
Amtrust has agreed not to rely on the term in existing policies. It has agreed to apply the amended term in practice to its existing customers who signed a PPI policy before 1 March 2006 and will be informing those customers of that.
Other Amtrust PPI policies where this term occurs are also being amended in line with this agreement.
The Keyfacts document has been amended in line with the policy amendments.
In addition, the new term allows for a refund of premium if consumers cancel their PPI even if the loan is still outstanding in some circumstances.
Amtrust was fully cooperative in agreeing this undertaking.
Statement from St. Andrew's Insurance
June 2006
One of the insurance policies we reviewed was the Virgin Money – Personal Loan Payment Protection policy. This insurance is sold under the Virgin brand, but is arranged through MBNA Europe Bank Ltd (MBNA) and is underwritten by St Andrew’s Insurance plc (St Andrew’s).
We wrote to the underwriter of the policy, St Andrew’s. It told us that in November 2005, before we notified it of the issue, MBNA identified an error in the cancellation wording of the St Andrew's PPI policy which did not reflect what it did in practice. The term in question states that a refund of premiums did not apply after the initial 30 day period if consumers decided to cancel the policy. See the original term.5
However, MBNA told us that in practice, it has always had a policy to provide refunds if consumers repaid the loan early or if consumers chose to cancel the PPI but the loan remained outstanding. Due to a drafting error in 2005, the policy wording did not reflect this.
MBNA and St Andrew’s have since corrected the policy wording and all new contracts contain the corrected term. See the amended term.6 In addition, MBNA continues to apply the corrected term in practice to existing customers. MBNA is writing to affected existing customers enclosing the corrected wording and pointing out the error.
MBNA and St Andrew’s have worked in positive collaboration with us during this thematic work.
1 The original term stated: ‘If you settle your credit agreement before you are legally obliged to, you will not be entitled to any refund of premium for this insurance policy.’
2 The amended term now states: 'If you decide to repay your credit agreement before the final repayment date or if you wish to cancel your insurance, your cover under this policy will end. You will be entitled to receive a refund of premium but it will not be a proportionate amount of the premium originally paid.'
3 The original term stated: 'You may cancel within 30 days of the Insurance Start Date and We will refund any Premium You may have paid. No refunds of Premium will be payable if cancellation is received after the first 30 days and the Insurance will remain effective until the Finishing Date of Cover. No refund of Premium will be payable where a claim has been made under this Insurance.'
4 The amended term now states: 'If you are not entirely happy with the cover, you may cancel within 30 days of the Insurance start date and we will refund any premium you may have paid, otherwise we will offer a pro-rata refund of premium. No refund of premium will be payable in respect of cancellation after the first 30 days where the cancellation arises out of a default by you. No refund of premium will be made where a claim has been paid on the Insurance.'
5 The original term stated: 'If after reading this Policy You do not want to continue with this insurance call 0800 062 621 within 30 days of receiving this Policy, We will cancel Your insurance cover. If you have not made a claim We will refund any premiums paid. If You cancel Your Policy after more than 30 days no refund of premiums will be paid.'
6 The corrected term now states: 'If You wish to cancel Your policy after 30 days from receiving these policy conditions You must give 30 days notice. If You do this or You repay Your loan early We may give You a refund of part of the premium. We work out refunds using an actuarial method. This has the effect of apportioning more of Your premium to the early part of the policy term when We bear most of the risk and costs. This is because many of Our costs are incurred at the beginning of the policy and because the amount We might have to pay out for a claim is greater at the beginning of the policy than at the end.'