The Financial Services Authority (FSA) has published recommendations for companies writing to customers who have been mis-sold payment protection insurance (PPI).
As some lenders have already started contacting customers to let them know they may have been mis-sold a PPI policy, the FSA has produced a set of guidelines detailing best practice for these firms.
As it is still at consultation stage, the guidance is not legally binding at present. Nevertheless, it outlines the regulator’s assessment of what PPI customer contact letters (CCLs) should contain, with a view to providing a framework for clear, fair and transparent communication between PPI providers and consumers.
You can download the full PDF here.
Background on the PPI mis-selling scandal
In November 2005, the FSA identified dishonest sales practices and a lack of compliance controls in the PPI industry. The FSA published a report on its findings and wrote to chief executives summarising the problems it had discovered.
In September and October 2006, a number of small firms were fined by the FSA for mis-selling PPI, and ‘enforcement procedures’ were served against 24 companies.
In January and February 2007, the FSA fined a number of major PPI providers for unfair treatment of customers, and the Office of Fair Trading (OFT) referred the issue to the Competition Commission.
Over the next 18 months, more PPI providers were fined, the Competition Commission published 2 papers detailing additional issues in the PPI market, and the Financial Ombudsman Service asked the FSA to investigate whether firms are dealing with PPI complaints satisfactorily.
In May 2009, the FSA banned the sale of single-premium PPI bundled with loans, and in September 2009, the FSA launched a consultation into how firms could handle PPI complaints better.
In October 2010, the banks sought a judicial review of the new rules, but the High Court ruled against them in April 2011. In May, the British Bankers’ Association confirmed it wouldn’t be appealing.
To date, over £2 billion has been paid out in compensation to victims of PPI mis-selling.
Context for the FSA’s latest intervention
In the second quarter of 2011, PPI providers were advised that they should begin sending customer contact letters (CCLs) to any victims of mis-selling, and were given 6 months to act on this advice.
The 6-month period has now ended, prompting the FSA to issue guidance on the content and presentation of CCLs.
Key points from the FSA’s guidance on PPI CCLs
PPI providers should contact all customers they believe may have been mis-sold PPI.
CCLs shouldn’t contain any marketing material or content that may distract from the key message.
Letters should indicate to customers that they have been mis-sold PPI, how this happened, that this may have caused them financial loss, and what steps they should take to resolve this.
Once customers have been contacted, their complaint will only remain valid for 3 years, after which they will no longer be able to claim compensation.
What does all this mean for consumers?
The fact that the FSA is advising PPI providers to contact potential victims of mis-selling is a positive step, as it means that customers may be alerted to the problem in cases where they would otherwise have been oblivious.
The FSA’s advice puts the onus on the industry to take responsibility for the problem, and aims to shift the emphasis back to fairness and accountability in a market where customers’ trust has been massively eroded in recent years.
As things stand, PPI providers still have a long way to go before they regain the trust of consumers.
There is a possibility that, having made contact with customers directly, PPI providers may seek to settle cases as cheaply as possible. Some customers may accept settlements that are lower than what they’re entitled to because they don’t want to wait for the money or get into a protracted dispute with their bank.