Lenders to clarify mis-sold PPI details
Firms that may have mis-sold payment protection insurance (PPI) to consumers have been given guidelines in order to clarify the information sent to those potentially affected.
The guidance – outlining the steps that should be taken when contacting customers – has been published by the Financial Services Authority (FSA) and coincides with action currently being taken by banks that are beginning to contact potential victims who have yet to complain.
According to the FSA guidance, letters to customers should be clear, fair and avoid financial jargon. They should also clearly explain why customers may have been mis-sold PPI, inform that they could be entitled to redress, and, describe the necessary steps and time limits involved if compensation is to be secured.
PPI was originally designed to cover loan repayments, including mortgages and credit cards, should the policy holder fall ill or become unemployed. However, it was increasingly sold to those ineligible to make a claim and, in many instances, people were unaware that they had actually purchased the discretionary insurance.
The Financial Ombudsman Service (FOS) revealed last week that it had received 46,700 complaints related to PPI in the last six months and warned it expects to receive a record amount in the coming year. Banks have already set aside around £7.6bn to cover PPI claims, according to the Telegraph.
Martin Wheatley, FSA managing director, says: “This is important guidance and marks a key moment in the story of PPI. So far the majority of payouts have been for complaints received before, or put on hold during, the judicial review. However, we are now beginning to see firms considering how to treat customers who were mis-sold but have not complained.
“Historically, response rates for these types of exercises are low – sometimes as low as one in ten. Therefore, if you receive a letter, it’s important to consider your PPI purchase carefully and if you feel you have been a victim of poor practice – please do respond to the firm.
Although consumer groups welcomed the FSA’s guidelines, many also warned customers to remain vigilant by re-checking all past financial products in which PPI may have been mis-sold.
Martin Lewis, spokesman for Money Saving Expert said: “Not everyone who’s been mis-sold PPI will get a letter. Providers only need write to those who have been ‘systemically mis-sold’, yet there are many more individual cases.”
Consumer group Which? also responded to the PPI guidance encouraging customers to contact their lenders directly and to steer clear of companies claiming to offer managing PPI cases on their behalf.
Which? executive director Richard Lloyd, reiterated: “The message to anyone who thinks they might have been mis-sold PPI is simple: contact your lender, it’s easy and free to do, and don’t make the expensive mistake of paying a claims management company to do it for you.”