Payment Protection Insurance
last updated April 2009
Payment Protection Insurance (PPI) is designed to protect a consumer's credit card, loan or mortgage payments if they cannot work because of accident, sickness or unemployment. PPI can be beneficial, but in practice problems have arisen with the way that policies have been sold. There is evidence of sales made where consumers were ineligible to claim or where the policy was not suitable for their circumstances.
The FSA has been conducting thematic work to review the sales processes and systems and controls around the sale of PPI. An FSA report on this work [PDF opens in a new window] was published in September 2007. Following earlier work, the FSA had contacted the CEOs of the larger firms that operate in this market, setting out its expectations, and stating that further regulatory action would be taken if these expectations were not met. It also sent a factsheet to small firms [PDF opens in new window] to help them understand their obligations in relation to the sale of this product.
The Financial Ombudsman Service has continued to receive a large number of PPI complaints, a significant proportion of which are upheld, suggesting the existence of widespread consumer detriment. This, coupled with information arising from the work of the FSA and the Competition Commission, led the ombudsman service to the view that there appear to be systemic issues in relation to PPI.
In July 2008, under the Wider Implications process, which encourages effective co-operation and management of issues where the responsibilities of the ombudsman service and FSA may overlap, the ombudsman service wrote formally [PDF opens in a new window] to the FSA inviting it to consider wider regulatory action – on the basis that individual consumer complaints are not the most appropriate way in which to deal with what appears to be a systemic problem.
The FSA published an update statement in September 2008 in which it confirmed that, in view of the poor results gathered during its recent work, it had escalated its regulatory intervention. It was considering the appropriate action to deal with ongoing non-compliant sales practices and to identify and remedy non-compliant past sales. The FSA also confirmed that it was working with the Financial Ombudsman Service on the appropriate response to this serious matter, in the context of FSA’s broader strategy.
In January 2009 and February 2009 the FSA published updates on its work. It has also published 20 enforcement cases addressing PPI failings and requiring redress for consumers who suffered detriment. This has included fining a firm £7 million in respect of its sales practices concerning telephone sales of PPI alongside personal loans.
In April 2009 the FSA wrote formally [PDF opens in new window] with an interim response to the ombudsman service referral. The response summarised some of the action the FSA had taken and is proposing in response to the problems within the PPI market.
The FSA and the ombudsman have met regularly to discuss the PPI market and the FSA has kept the ombudsman up-to-date on its regulatory response to problems in the market. The FSA will continue to update the ombudsman.