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FSA/PN/015/2007
30 January 2007

The Financial Services Authority has today fined GE Capital Bank Ltd (GECB) £610,000 for failing to have adequate systems and controls for selling insurance which includes Payment Protection Insurance (PPI) and for failing to treat its customers fairly.

GECB's main business is providing credit finance through store cards, credit cards and sales finance. The store cards are usually branded in the name of the retailers (who are appointed representatives of GECB) and the insurance is usually offered to customers at the till when they are applying for a store card. If not bought at the till, customers are contacted later by GECB's telesales staff.

At any one time, approximately 300,000 retail assistants employed by the stores are permitted to sell insurance on behalf of GECB. In 2005 alone, over 850,000 policies which included PPI were sold on its behalf.

FSA Director of Enforcement Margaret Cole said:

"Millions of people take out store cards every year. They need to know that PPI is almost always optional and should consider whether they need it before signing up.

"Our focus on Payment Protection Insurance will remain very high this year. We are determined to see significantly better practice in PPI sales and will crack down where firms fail to treat their customers fairly."

This fine follows two phases of FSA work looking into PPI and the way it is sold. By the end of June 2007, the FSA will have visited over 200 PPI firms in two years. To help consumers make informed decisions, the FSA's consumer website www.moneymadeclear.fsa.gov.uk includes questions that people should ask themselves before taking out PPI.

The FSA found that GECB failed to review and amend its procedures for selling insurance in light of its own evidence, emerging from Q2 2005, of widespread non-compliant selling practices. The breaches arose in the following areas:

• Sales: the firm failed where appropriate to review, amend and then operate its sale procedures to ensure that all customers received adequate information about the policy before they made a decision on whether to take insurance.
• Training: in light of evidence that sales staff were not complying consistently with its sales procedures, the firm failed to amend its training procedures.
• Monitoring and management information: the firm failed where appropriate to ensure its monitoring procedures were effective and failed to act in response to management information which was collected and available.
• Customers: the firm failed to implement any procedure to contact customers to remedy the non-compliant sales identified by its monitoring procedures.
• Compliance: the firm failed to resource the compliance function adequately.

GECB is continuing to carry out a remedial action programme to review and improve its systems and controls. To reduce the risk that customers may have lost out GECB is carrying out a comprehensive customer contact exercise and will pay compensation where appropriate. In this particular case the financial impact on most customers was likely to have been modest. The FSA took these factors into account in determining the level of the financial penalty.

By agreeing to settle at an early stage of the FSA investigation GECB qualified for a 30% discount under the FSA's executive settlement procedures – without the discount the fine would have been £870,000. Without the commitment to remedial action and appropriate redress the financial penalty would have been substantially higher.

Notes to editors

1. The full text of the Final Notice dated 30 January 2007, 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.

2. GECB sells general insurance policies, which include PPI, mainly on store cards offered by leading high street retailers. The insurance – often described as "Account Cover" – is sold in shops across the UK. These in-store sales make up 95% of the firm's sales, with the remainder, approximately 5%, concluded over the telephone.

3. Both the in-store and telephone sales are 'non-advised' which means that GECB does not recommend the insurance policy as suitable for particular customers. For a non-advised sale the obligation on firms is to provide the appropriate information to customers in good time before the sale to enable the customer to make an informed decision as to whether the insurance is necessary or suitable. In this case, important information about the insurance was not provided to all customers in good time before the conclusion of the contract; and in some instances telephone customers were provided with inaccurate or misleading information about the insurance.

4. GECB's failings came to light during a thematic visit by the FSA to the firm in 2005 after which it was referred to Enforcement.

5. GECB was in breach of the FSA's Principles for Businesses 2, 3 and 6:

   • 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.

6. Results of the FSA's follow-up thematic work on the sale of PPI published in October 2006 found that some firms selling this insurance were still failing to treat their customers fairly. Findings showed that many firms were still not giving customers clear information during the sales conversation; customers were 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 was not always done with the best interests of the customer in mind. More details can be found in FSA Press Notice 03/2007.

7. The FSA has previously fined three firms over poor PPI selling practices - Regency (PN 88/ 2006), Loans.co.uk (PN 105/2006) and Redcats (PN136/2006) and has imposed a public censure on Eastern Western Motor Group (PN 137/2006). 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 investigations are underway.

8. 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.
9. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.