FSA consults on relaxing the mortgage endowment time bar rules

These proposals will significantly reduce the risk that some endowment policyholders who were mis-sold policies might have missed the opportunity to complain because they did not realise they had a claim and failed to act in time.

The proposals take account of the findings of FSA research conducted over the summer that indicated that the vast majority of mortgage endowment policy holders are aware of concerns about mortgage endowments. Most are making rational and informed decisions about what action to take (e.g. take steps to make good a potential shortfall, complain about mis-selling). The research, which is also published today, focused both on general consumer perceptions of mortgage endowment issues and on the experiences of those who have complained.

The research involved 1000 consumers who had made complaints and 800 consumers who had not. Of those surveyed:-

• 99% are aware of concerns about endowment mortgages;

• 84% of consumers stated their policy was either on track to pay the sum assured, or that any shortfall presented little or no financial problem;

• 87% of those who do not intend to take action on a shortfall consider it to be a small, little or no financial problem;

• 21% of endowment policies were never, or are no longer, being used to repay a mortgage; and

• 92% of those consumers that had decided not to complain know how to enquire of their firm and 85% know how to complain.

Consumers also highlighted some clear areas for improvement in the way mortgage endowment complaints are handled. For example:-

• the time it takes firms to investigate complaints and issue decisions. Over 50% of consumers who had complained said that it took too long; and

• 39% felt that they had not been given clear reasons for the firms decision.

John Tiner, Managing Director at the FSA, said

"The most important thing anyone facing a shortfall needs to decide is what to do about it. Our advice is dont delay. Read the FSA factsheet that comes with your re-projection letters, and if you need to act, do it now."

"The research shows that most consumers are aware of the issues and, if they do decide to complain, know how to go about it. There is, however, still considerable room for improvement in some firms handling of complaints. We are keeping a close eye on firms and will take appropriate action where we identify any shortcomings that could damage consumers interests."

Notes for editors

1. The FSA has been in discussions with insurers during the year and has proposed rule changes to clarify the position on time bars for consumers.

   Specifically:

   • Time should only start to run as a result of sending a re-projection letter if it is a red letter (there is a high risk that your endowment policy will not pay out the target amount at the end of the term). An amber letter, which indicates only that there may be a problem, or a green letter, which indicates the policy is on track, should not start time running.

   • The normal three-year period would be extended, where this is necessary, to allow complainants six months after the receipt of a further re-projection letter or other reminder within which to complain.

   • A complaint will be regarded as made in time if, within the relevant period, it has been lodged with the firm (and can be shown to have been acknowledged) or with the Ombudsman. This change is of general application i.e. not confined to mortgage endowment complaints.

   A red letter is not enough to start time running on its own. A claim can only be made if both:

   • the policy was mis-sold at outset (e.g. It was unsuitable for the customer, or the salesperson indicated that it was guaranteed to pay off the mortgage); and

   • there was potential for financial damage as a result of that mis-sale (rather than due to poor market performance since).

2. FSA has published new information on its website for consumers explaining how the time limits affect their ability to make a complaint about their mortgage endowment policy. The research paper can be found at www.fsa.gov.uk/pubs/consumer-research/.

3. Consultation ends on 05/01/03.

4. NOP Financial were selected to undertake large scale independent research into mortgage endowment policyholders as part of FSAs ongoing work into understanding consumers perceptions of mortgage endowment issues.

   Main fieldwork for complainants and non-complainants was conducted concurrently from the 12th 27th August 2002. All interviews were conducted using computer assisted telephone interviewing.

   800 interviews were conducted with mortgage endowment policyholders who have not made a formal complaint to their endowment provider.

   1000 quantitative telephone interviews were conducted amongst customers that had made a complaint about their policy between 1st September 2001 and 31st May 2002.

5. 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 appropriate degree of protection of consumers; and fighting financial crime.

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