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FSA/PN/003/2007

The Financial Services Authority today announced details of a new phase of its work designed to improve sales standards in the Payment Protection Insurance (PPI) market. This is one of the largest programmes of thematic work the FSA has undertaken.

The new work builds on two earlier phases in 2005 and 2006. It will include mystery shopping and an extensive programme of both follow-up work with firms whose practices were earlier identified as deficient and visits to a sample of firms not previously visited. A particular focus will be on firms for whom the sale of PPI is a minor activity relative to their main business.

Clive Briault, FSA Managing Director of Retail Markets, said:

"Improving sales standards in the PPI market remains a key priority for us and we see it as an indicator of whether firms are treating their customers fairly. Customers should come away from the sale having been given the best possible chance of understanding that PPI is almost always optional, what the policy will and will not cover, and how much it costs. The next phase of our programme will tell us what progress has been made and what further action is necessary."

The next phase, to be completed by the end of June 2007, is designed to test industry progress on ensuring that customers:

• are told that PPI is optional, where this is the case;
• receive clear information about the product and what it will cost;
• are given the assistance they need to be clear about what they are eligible for under the policy and what the exclusions are;
• are, where advice is given, recommended a policy that meets their needs; and
• are offered a fair refund if they cancel their policy.

The four main elements of the programme involve visits to firms, enforcement action where appropriate, information aimed at consumers, and a review of current FSA rules on PPI.

By the end of June the FSA will have visited over 200 PPI firms in two years. Around 10 firms have so far been referred to enforcement, with the outcomes published in relation to six of these. The FSA will continue to take disciplinary action against firms that fail to meet appropriate standards.

To further help consumers make informed decisions, the FSA will launch in February a two-month campaign targeting consumers in the market for insurance products including PPI. The FSA's consumer website – www.moneymadeclear.fsa.gov.uk – includes questions that people should ask before taking out PPI. A number of key trade associations are also launching a consumer guide of their own.

The FSA's advice on PPI for consumers is:

• PPI is almost always optional and you should not be refused credit if you decide not to buy it;
• Consider your own personal financial circumstances, including any other insurance cover or savings you already have, when deciding whether you need it;
• If you do need it, make sure you are clear about what you will be covered for and what won't be covered - for example any exclusions relating to the nature of your employment or your medical history;
• Ask before buying if you are uncertain;
• Remember, you don't have to take out PPI from the same place you get your loan from - shop around to compare benefits and prices;
• Check what you will get back if you cancel the policy or repay the loan early.

The FSA is not convinced that its current rules relating to PPI are delivering the protections that customers deserve and intends to see if there is a case for changes to some of the existing rules or the introduction of new rules. There will be further news on this later this quarter.

The FSA is also examining the case for adding PPI to its suite of web-based tables which enable consumers to compare products.

The outcome of this latest phase of work will be published during the third quarter of 2007. Meanwhile, in recognition of the wider structural issues that exist in the PPI market, the FSA will continue to work closely with the competition authorities.

Notes for editors

1. More details about the PPI Phase 1 and Phase 2 work can be found in FSA Press Notice 115 and FSA Press Notice 104. The Phase Two work, published in October 2006, found that many firms were not giving customers clear information during the sales conversation, that customers were not being made fully aware that there may be parts of the policy under which they cannot claim, and that some firms were failing to establish that the PPI policies they recommend were suitable.
2. The FSA intends to check that firms have changed the practice of offering nil-refunds on single premium PPI policies; this follows work it carried out during 2006 following which they received undertakings from three firms to amend such clauses in their contracts, and dialogue with the industry to spread this practice industry-wide.
3. The ICOB effectiveness review is considering, among other things, whether the ICOB rules provide sufficient consumer protection for protection products, including PPI, and whether there is a case for deregulation in the case of simpler general insurance products such as household and motor insurance. More information can be found in Press Notice 116.
4. The FSA has already fined three firms over poor PPI selling practices - Regency, Loans.co.uk and Redcats and has imposed a public censure on Eastern Western Motor Group. Two other cases have recently been concluded where problems relating to PPI also featured - Capital Mortgage Connections and Home and County Mortgages. Other PPI enforcement investigations are underway.
5. 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.
6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.