Mis-sold PPIs targeted by financial services watchdogs
Financial services firms which mis-sell payment protection insurance (PPI) policies have been targeted for action by the Financial Services Authority (FSA) and Office of Fair Trading (OFT).
The watchdogs have said they will use their powers to stop firms mis-selling potentially harmful new loan insurance schemes.
Big UK banks - the main sellers of PPI policies to people with loans such as mortgages and credit cards - and other firms stand to lose billions of pounds due to the current clampdown on mis-sold PPIs
After a comprehensive defeat in the High Court earlier this year, the banks now have to set aside compensation
of at least £6bn to the many thousands of customers to whom they mis-sold PPI policies
However, the authorities are worried that financial services firms will find a way around further regulation by inventing new types of 'insurance', which could force customers to buy unnecessary and ineffectual policies
FSA managing director Margaret Cole said this was the first time that her organisation had issued guidance on the design of a specific product.
"The two organisations [FSA and OFT] will continue to monitor developments in the market, and will take appropriate action under their respective powers where firms' products or practices risk causing detriment to consumers."
The OFT warned that it would take action under the Consumer Credit Act to stop improper or unfair selling practices.
This tougher stance comes in light of previous mis-sold PPI scandals involving personal pensions and mortgage endowment policies. The authorities will now intervene earlier to stop problems of mis-sold PPIs, instead of clearing things up later.Bryan Nott
of Simpson Millar LLP said that firms were generally targeting the wrong consumers for their 'protection' insurance. "Policies that might be right for one group are not necessarily good for another," he said. "Mis-sold PPIs often happen because of a lack of transparency and consumers don't always know what they're buying."
With the FSA due to close, responsibility for protecting consumers against mis-sold PPIs will pass to a new Financial Conduct Authority (FCA).
Lord Turner, the current head of the FSA, said it was vital the FCA would have the power to ban financial policies before they were sold.
"In financial services, the potential for the customer to be ripped off is simply far greater than in other sectors of the economy - and the consequences potentially more significant," he said.