FSA gets a fair deal for those who were mis-sold mortgage endowments

The standard approach outlined in the consultation on mortgage endowment complaints, published last November, remains unaltered in principle, although some changes have been made.

In the majority of cases, compensation will be calculated to reflect the difference, in terms of impact on the individuals finances, between having an endowment mortgage compared with a repayment mortgage. This will take into account the capital repaid on a repayment mortgage, compared with the surrender value on the endowment, and any difference in monthly outgoings.

Christine Farnish, Director of Consumer Relations at the FSA, said:

Through the guidance we are issuing today we are ensuring that consumers can get a fair and consistent deal. Everyone with a mortgage endowment policy should be aware that the performance of these products depends on stock market movements. If consumers arent happy with this, and think it wasnt properly explained when they took out the policy, they may well have grounds for a complaint. Any consumers that feel that they have grounds for a complaint, even if they have surrendered their policy, should act now.

In conjunction with the guidance to firms a new and updated factsheet on Endowment Mortgage Complaints is being issued to help consumers. This factsheet explains what they can complain about, how to make a complaint, and, if compensation is due, how it will be decided.

Three new issues that emerged from the consultation were those of Traded Endowment Policies (TEPs), windfalls and further guidance on the treatment of lower outgoings.

 The FSA has included guidance on the role it sees for the traded endowment policy market, and the actual payment of compensation where someone has the option of using the TEP market instead of surrendering their policy.

 We are looking very carefully at the treatment of windfalls and will issue guidance on this area at a future date. In the meantime, if firms wish to delay settling mortgage endowment complaints then they can, although the complaint should be progressed as far as possible and complainants should be kept informed about progress.

 Having looked again at the issue of lower monthly outgoings, further guidance sets out an additional area where it may be unreasonable to take lower outgoings on the endowment into account. This is where the advice to the complainant, at the time the policy was sold, was that they would have lower outgoings when compared with those under a monthly repayment mortgage and they have gone on to dissipate the savings.

Notes for editors

1. The Final Guidance and a Feedback Statement giving details of the responses to Consultation Paper 75 Endowment Mortgage Complaints are available from www.fsa.gov.uk.

2. Windfalls are the benefits received by an individual when a company de-mutualises, subject to that companys eligibilty criteria.

3. PIA Regulatory Update 89 (RU89) has been issued to firms today. RU89 includes advice to firms on how they may wish to deal with the issue of windfalls when dealing with mortgage endowment cases. RU89 also, separately, gives advice to firms on how they may wish to treat windfalls in connection with pensions review and FSAVC cases.

4. The FSA is continuing its focussed work looking at individual firms. This has included reviewing both historical selling practices and, in some cases, the way that premiums were set and represented to consumers. The FSA has also reviewed current selling practices by looking at Q4 2000 business written by virtually all firms with a market share of mortgage endowment sales of 0.1% or more.

   As a result of these areas of work the FSA is in detailed discussion with a number of firms. The exact approach on any action to be taken by a firm will depend on the particular problems identified within that firm but in several cases proactive review by firms is likely to be an effective way of reaching the consumers concerned. It is not yet possible to be precise about the numbers of consumers affected but is expected to be anything between tens of thousands and hundreds of thousands rather than millions.

5. Useful consumer publications available free of charge include:

   FSA Factsheet: Endowment mortgage complaints

   FSA guides to making a complaint, financial advice and repaying your mortgage

6. 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; the protection of consumers and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.