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FSA/PN/039/2008
12 May 2008

The Financial Services Authority (FSA) has fined furniture retailer Land of Leather Limited (the firm) £210,000 for allowing its sales force to sell Payment Protection Insurance (PPI) on loans without effective monitoring or training in place to ensure that the insurance was being sold fairly.

Additionally the FSA has fined Land of Leather’s Chief Executive Paul Briant £14,000 for failing to properly oversee the sale of PPI by the firm.

The firm became authorised to sell PPI in May 2006, but it did not ensure that all of its sales force were fully trained to sell PPI until November 2006 and it continued to sell PPI in its 90 stores without any effective check on its sales force until February 2007. 

FSA Director of Enforcement Margaret Cole said:

"Firms must not sell PPI unless they have appropriate systems and controls in place to ensure that their customers are treated fairly.  We are determined that firms should change their behaviour in selling PPI and the fines against Land of Leather and Mr Briant show our determination in this area.  Mr Briant's fine sends out a strong message that senior management are responsible for ensuring that their firm has robust and effective systems and controls and is complying with its regulatory obligations.  Retail firms whose primary business is not selling general insurance will be held accountable to the same regulatory standards as the rest of the financial services industry."

The FSA has fined Mr Briant even though he knew other senior managers and experienced compliance staff were addressing PPI issues although the steps they took were ultimately insufficient – delegating authority for dealing with PPI does not mean delegating responsibility.  The fine against the firm reflects the announcement last September that the FSA would be imposing higher fines for serious failings in the retail market including against firms who fall short in relation to PPI.  The fine against the firm would have been higher had Land of Leather not taken a number of positive steps to improve its systems and controls during the period under review, for example conducting re-training and working to implement mystery-shopping and an after-sale customer contact exercise.

As a result of its failings the firm exposed around 58,000 customers to an unacceptable increased risk of buying unsuitable PPI.  Of those customers, around 8,200 will in practice end up paying for PPI – most customers settle their borrowing in full during an initial 12 month payment free period and therefore avoid any charge. Customers that did not repay their loan during this 12 month interest free period incurred the cost of a single premium (on average £380 or up to £719 with interest if their policies ran for the full term of three years) for the PPI cover on their loan.

The significance of the weaknesses in the firm's controls was identified by the FSA following a visit as part of its thematic work on the sale of PPI.

Once the FSA identified concerns, the firm voluntarily suspended its PPI sales until it received appropriate advice from external accountants regarding its PPI sales systems and procedures and had implemented their recommendations.  It has also recently made changes to its senior management arrangements in respect of PPI.

Land of Leather conducted a consumer contact exercise involving all customers who bought PPI on or after 1 November 2006.  This gave customers the opportunity to reconsider whether PPI was suitable for them.  No widespread mis-selling was identified and in a small number of cases the firm cancelled customers' PPI policies.  The firm has agreed to conduct a similar consumer contact exercise for certain customers who purchased PPI between 5 May 2006 and 31 October 2006.  The firm and its senior management co-operated fully with the investigation.

By agreeing to settle at an early stage the firm qualified for a 30% discount under the FSA's executive settlement procedures – without the discount the fine would have been £300,000. Likewise Mr Briant qualified for a 30% discount – without the discount his fine would have been £20,000.

Notes for editors

1. The full text of the Final Notice for Land of Leather and Final Notice for Mr Briant are available on the FSA website.  They include the background to the case, the relevant statutory provisions and the regulatory requirements contravened and the factors taken into account when settling the levels of the fines.
2. Any concerned customers should contact Land of Leather direct.
3. Land of Leather has been regulated by the FSA for insurance mediation activities, since 5 May 2006.
4. Land of Leather was in breach of the FSA's Principle for Businesses 3 which states that: "A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems."
5. Mr Briant was the sole approved person at Land of Leather during the Relevant Period (May 2006 to June 2007).  The Controlled Function in respect of which he was an approved person was CF8 (Apportionment and Oversight) – a 'significant influence' function.  As holder of the Apportionment and Oversight function he was responsible for both of:
6. dealing with the clear and appropriate apportionment of responsibilities among the firm's senior management so that it is clear who has which of those responsibilities and the business and affairs of the firm can be adequately monitored and controlled by senior management; and
7. overseeing the establishment and maintenance of systems and controls appropriate to the firm's business. 
8. The FSA's follow-up thematic work on the sale of PPI published in September 2007 found improvements in some areas, but also that many firms selling this insurance were still failing to treat their customers fairly.
9. The FSA has previously fined six firms over poor PPI selling practices: HFC Bank £1.085 million, Regency Mortgage Corporation Limited £56,000, Loans.co.uk £455,000, Redcats (Brands) Limited £270,000, GE Capital Bank £610,000 and Capital One Bank (Europe) Plc £175,000 – and has imposed a public censure on Eastern Western Motor Group Limited and Cathedral Motor Company Limited. Three other cases have been concluded where problems relating to PPI also featured - Capital Mortgage Connections Limited £17,500, Home and County Mortgages Limited £52,500 and Hadenglen Home Finance Plc (£133,000 for the firm and £49,000 for its chief executive).
10. The FSA introduced additional rules in its Insurance Conduct of Business Rulebook in January 2008 designed to improve PPI selling practices
11. To help consumers make informed decisions, the FSA's consumer pages – Moneymadeclear - includes questions that people should ask themselves before taking out PPI.
12. The FSA will introduce later this month (May) a new comparative information table for PPI on its Consumer Website.
13. The Competition Commission is currently conducting a market investigation into the PPI market.
14. 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.
15. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.