The Competition Commission (“CC”) has published the Final Report of its market investigation into the supply of Payment Protection Insurance. We have considered the remedies package set out in this report and welcome this intervention to enhance competition in PPI markets as complementary to our work to improve sales standards.
The FSA will continue to work closely with the CC and the OFT to ensure that the combination of our work around improving sales conduct and the CC’s work on competition results in lasting improvements in consumer outcomes in PPI markets. Details of the CC’s Final Report, including its decisions on PPI remedies, can be found on its website
The FSA is providing here a clarification of our conduct of business requirements for firms selling PPI, which are set out in the Insurance Conduct of Business sourcebook (ICOBS), to ensure that firms are clear that these standards and requirements remain in place. In particular, we set out here our expectations around ICOBS 6.1.5R, which requires that firms provide appropriate information about a policy in good time and in a comprehensible form so that a customer can make an informed decision about the arrangements proposed. ICOBS 6.1.8G provides some guidance on what firms should consider in determining what is “in good time” but we consider it important to clarify the position in the new regulatory context.
Firms arranging a payment protection contract must also meet the eligibility checking requirements set out at ICOBS 5.1.2. This requires firms to take reasonable care to ensure that customers only buy a policy under which they are eligible to claim benefits. If at any time while arranging the policy, the firm finds that part of the cover does not apply, it should inform the customer so he can take an informed decision on whether to buy the policy.
Going forward, the FSA will continue to look closely at the full range of regulatory tools and actions available to us to ensure that firms selling PPI meet our requirements to enable customers to make informed purchasing decisions. This may include consulting on new rules if necessary.
The CC’s remedies package includes a prohibition on the sale of PPI at the point-of-sale of the associated credit product, which prevents firms from concluding a PPI transaction until at least seven days after conclusion of the credit sale, or if later, the provision of a personal PPI quote. For the exact details on timing please refer to CC’s final report. The prohibition does not prevent firms from undertaking the full PPI sales discussion at the credit point-of-sale and firms are permitted to contact customers from seven days after conclusion of the credit sale to conclude the sale of PPI. Firms are also permitted to undertake and conclude a PPI sale with their credit customer if that customer initiates the contact with the firm, by telephone or over the Internet, from 24 hours after conclusion of the credit sale.
ICOBS requirements at the credit point of sale
If a firm initiates or engages in an oral sales discussion of PPI at the credit point-of- sale, the FSA expects the firm to adhere to the requirements set out in the ICOBS oral disclosure rules to ensure the consumer receives, at that stage, balanced information about the PPI product being offered. ICOBS 6.4.2R requires that, if a firm provides information orally during a sales dialogue with a customer on a main characteristic of a policy, it must do so for all the policy’s main characteristics. A policy’s main characteristics include its significant benefits, its significant exclusions and limitations, its duration and price information.
Disclosure of price information
In November 2008, we published a clarification of ICOBS price disclosure requirements for regular premium PPI products on the FSA website. Firms should take the clarification provided into account when providing price information both at the credit point of sale and at the PPI point-of-sale.
As stated in our clarification we are aware of regular premium PPI policies which are described as annually renewable. This type of contract can accurately be described as annually renewable if, at inception, the customer is provided with the monthly premium and the total annual premium and then at renewal the customer is sent a renewal schedule with the monthly premium and the total annual premium and given the opportunity to opt out. The disclosure of a monthly and the annual total premium at inception and at renewal in a way consistent with the standards set out in the ICOBS is capable of meeting the informed decision standards for these types of contracts.
Firms making PPI personal recommendations at the credit point–of-sale
Where a firm provides advice on PPI at the credit point-of-sale, the firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgement. ICOBS 5.3.2G provides guidance to firms on what they should consider in taking reasonable care to ensure the suitability of advice. This includes informing the customer of any demands and needs that are not met.
ICOBS 5.2.2R sets out clearly that, prior to the conclusion of a PPI contract, a firm must specify, in particular on the basis of information provided by the customer, the demands and the needs of that customer as well as the underlying reasons for any advice given to the customer on that policy. ICOBS 5.2.3R sets out how a statement of demands and needs must be communicated to the customer.
ICOBS requirements at the PPI point-of-sale
We consider that there is the potential for some of the disclosures required under ICOBS to be omitted or not appropriately undertaken if the point-of-sale prohibition results in the ICOBS sales dialogue, being split over two or more interactions between the credit provider and the customer. We also consider that a customer who is contacted by a firm, for example by telephone after the prohibition period has ended will not be in a position to make an informed decision solely on the basis of any prior information they may have received during the associated credit transaction for reasons which include:
- the consumer's focus during the credit transaction may not be on the PPI product and any proposed arrangements; and
- the effects on the consumer's ability to sufficiently recall the details of the proposed arrangement, given the time lapse between any information received at the credit point-of-sale and the customer being asked to make a substantive decision when they are re-contacted by a firm.
For these reasons, firms cannot rely on oral information about PPI given during the credit transaction as meeting our oral disclosure requirements and informed decision standard for PPI sales.
Where a firm contacts a consumer after the prohibition period has concluded in order to obtain that customer’s agreement to purchase PPI, or to conclude a sale, they must bear the following points in mind to ensure that the customer is in a position to make an informed decision:
Firm contacting customers by telephone or other means involving an oral discussion
Firms contacting consumers after the prohibition period has elapsed must ensure that the information provided during that follow-up discussion is sufficient for the customer to make an informed decision on the basis of that information. So the oral disclosure rules (ICOBS 4.2.4R, 6.4.2R and 6.4.5R) would apply here.
ICOBS 4.2.2G provides guidance for firms on ensuring customers can make an informed decision and states that, in considering customers’ information needs, a firm should have regard to the importance of information for the customer’s purchasing decision when deciding when and how to give it. Further, in determining when to give information, ICOBS 6.1.8G states that a firm should consider the importance of the information to the customer’s decision-making process and the point at which the information may be most useful.
The FSA considers that since the customer is being asked to make the substantive purchasing decision during this discussion, which is the effective PPI point of sale, we would expect the firm to undertake all the required ICOBS PPI disclosures during this discussion. This includes the disclosures required by ICOBS 4.2, which covers the status disclosure requirements and the requirement for firms to disclose the limits of the service they are providing. So, in a sale that does not involve a personal recommendation, a firm must take reasonable steps to ensure a customer understands he is responsible for deciding whether a policy meets his demands and needs.
In a sale that does involve a personal recommendation a firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgement including informing the customer of any demands and needs that are not met. And, prior to conclusion, any advice or personal recommendations made at the credit point-of-sale or the PPI point-of-sale must be communicated as set out in ICOBS 5.2.2R and 5.2.3R.
Firms contacting customers by letter or other written communication
Firms contacting customers by written communication after the prohibition period has elapsed must ensure that the communication is clear, fair and not misleading. A written communication must not be a means of informing or leading the customer to believe that they have made a prior agreement to purchase PPI at the credit point-of-sale which they must take action to opt out of. Firms must take steps to ensure that the customer’s decision to buy PPI is an active opt-in decision taken after it has provided appropriate information on which the customer can base an informed decision about the arrangements proposed. Firms must ensure that the requirements set out in ICOBS 4.2, 5.2 and 5.3 are met as appropriate.
Where the customer contacts the firm after 24 hours from conclusion of the credit sale
The FSA considers that since the customer is being asked to make the substantive purchasing decision during that follow-up discussion, which is the effective PPI point of sale, we would expect the firm to undertake all the required ICOBS PPI disclosures during that further discussion. And, prior to conclusion, any advice or personal recommendations made at the credit point-of-sale or the PPI point-of-sale must be communicated as set out in ICOBS 5.2.2R and 5.2.3R.
