FSA fines home shopping company £270,000 for PPI selling failures
Margaret Cole
We have highlighted Payment Protection Insurance as an FSA priority due to the potential risks to consumers. 
FSA/PN/136/2006
20 December 2006
The Financial Services Authority has today fined Redcats (Brands) Limited £270,000 for failing to treat its customers fairly when selling Payment Protection Insurance (PPI) in connection with home shopping products. The regulator found that Redcats did not have adequate systems and controls in place to minimise the risk of unsuitable sales.
There were also weaknesses in the way that Redcats operated and maintained its compliance systems, training and competence arrangements and sales processes.
Redcats’ breaches were particularly serious because they meant that over an 18-month period approximately 160,100 customers were sold PPI which might not have been suitable for their individual needs.
Redcats specialises in home shopping with PPI sold to cover instalment payments for the merchandise bought through catalogues by phone, post or via the Internet.
The FSA investigation found that a significant number of customers were provided with insufficient information about the PPI policy features, terms, exclusions and limitations through its telephone sales channel.
Despite stating that its sales were made on an advised basis, Redcats failed to comply with regulatory requirements for advised sales. As a result a significant number of customers were sold PPI without being provided with personal recommendations or advice, either verbally or in writing, as to why the PPI policy met their demands and needs.
FSA Director for Enforcement Margaret Cole said:
'We have highlighted Payment Protection Insurance as an FSA priority due to the potential risks to consumers. As a result of its systems and control failures Redcats exposed its customers to an unacceptable level of risk. Firms offering PPI must operate in a way that treats their customers fairly and meets regulatory requirements.'
In determining the level of the financial penalty, the FSA took into account a number of measures taken by Redcats which mitigate the seriousness of its failings including engaging an independent consultant to assist in implementing changes to its compliance arrangements, committing to a remedial action plan and voluntarily suspending new PPI sales while the plan was put in place.
By agreeing to settle at an early stage of the FSA investigation Redcats qualified for a 30% discount under the FSA's executive settlement procedures – without the discount the fine would have been £386,000.
The FSA has already fined two firms over poor PPI selling practices - Regency (PN 88/2006) and Loans.co.uk (PN 105/2006). Two other cases have recently been concluded where problems relating to PPI also featured - Capital Mortgage Connections (PN 119/2006) and Home and County Mortgages (PN 132/2006). Other PPI enforcement cases are pending.
Notes for editors
- The full text of the Final Notice, dated 19 December 2006, is available on the FSA website. This includes the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account when settling the level of the fine.
- Redcats’ failings came to light during a thematic visit by the FSA to the firm. In January and February 2006 the firm's Internal Audit and Compliance functions raised concerns to senior management about Redcats' assessment of product suitability during the PPI sales process and highlighted that there was limited disclosure of the key terms of the policy to customers. Despite these concerns being raised, Redcats incorrectly assumed that it was appropriate to delay implementation of the remedial action suggested in the internal reports until after the FSA's thematic visit. As a result, remedial action took effect four to five months after the internal reports were produced.
- Redcats was in breach of FSA Principles for Business 2, 3 and 6 and also of specific provisions in two parts of the FSA Handbook, Training and Competence (TC) and the Insurance: Conduct of Business (ICOB).
- FSA work on PPI published in October found that some firms selling this insurance are still failing to treat their customers fairly. Findings showed that many firms are still not giving customers clear information during the sales conversation; customers are still not being made fully aware that there may be parts of the policy under which they cannot claim; and where customers are sold single premium policies, this is not always done with the best interests of the customer in mind. More details can be found in FSA Press Notice 104/2006.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
Principle 2: A firm must conduct its business with due skill, care and diligence.
Principle 3: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
Principle 6: A firm must pay due regard to the interests of its customers and treat them fairly.