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FSA/PN/026/2007
26 February 2007

The Financial Services Authority has today imposed a public censure on Cathedral Motor Company Limited (Cathedral) for failures relating to its sale of Payment Protection Insurance (PPI) in connection with vehicle finance agreements.

Cathedral is a franchised car dealer with four branches in the Midlands trading as Arbury. Its primary business is the sale of new and used cars with PPI being sold on an advised basis to cover vehicle finance agreements.

Cathedral failed to organise and control its regulated business responsibly and effectively. In particular, there was limited or no monitoring of its staff and consequently it could not determine whether its sales staff paid due regard to the needs of customers. Cathedral did not sufficiently apportion compliance responsibilities among its senior management and did not ensure appropriate training of its staff.

Cathedral also failed to provide customers with certain key documents before conclusion of the sale, creating a risk of consumer detriment.

FSA Director for Enforcement Margaret Cole said:

"The sale of PPI is a priority for us due to the high potential risk for consumers in the way this product is sold and we are determined to see much better practice in this area. This is the second enforcement action we have taken against a car dealer in connection with PPI sold on vehicle finance agreements and it is important that firms whose primary business is not selling general insurance should adhere to our rules just as much as mainstream brokers. Cathedral's failings, particularly in relation to the monitoring of sales staff, created a risk of consumer detriment. We have taken a number of enforcement actions relating to PPI recently and more cases are in the pipeline."

The public censure follows two phases of FSA work looking into PPI and the way it is sold. A third phase is underway and 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 includes questions that people should ask themselves before taking out PPI. Full details can be found on the payment protection insurance page.

In determining the appropriate disciplinary measure, the FSA took into account a number of mitigating factors. The number of PPI policies sold by Cathedral was low (257 in 16 months) and after the problems were identified during an FSA thematic visit in May 2006, Cathedral voluntarily suspended PPI sales while it satisfied itself that future sales would be compliant. Cathedral has taken steps to improve its systems and controls, record keeping and training and monitoring arrangements and has also agreed to carry out an appropriate customer contact exercise.

Notes to editors

1. The full text of the Final Notice, dated 26 February 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 determining the most appropriate disciplinary measure.

2. Cathedral was in breach of FSA Principles for Businesses 3 and 7 and also specific provisions in parts of the FSA Handbook - Senior Management Arrangements, Systems and Controls (SYSC), Insurance Conduct of Business (ICOB) and Training and Competence (TC).

   • Principle 3: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
   • Principle 7: A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.

3. Cathedral has been authorised by the FSA in respect of its general insurance business since 14 January 2005.

4. Customers who arranged vehicle finance agreements through Cathedral were offered PPI policies on a regular premium basis at various levels of cover, including life; critical illness; disability; and accident and sickness and redundancy/business failure.

5. 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.

6. The FSA has previously fined five firms over poor PPI selling practices - Regency (PN 88/ 2006), Loans.co.uk (PN 105/2006), Redcats (PN136/2006), GE Capital Bank (PN/015/2007) and Capital One (PN 22/2007) 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.

7. 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.

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