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Financial Services Authority
The assessment and redress of Payment Protection Insurance complaintsFeedback on the further consultation in CP10/6 and final Handbook text
1 Executive summary 3
2 The rationale, cost and scope of our package of measures 9
3 Our Handbook provisions on assessing and redressing PPI complaints 39
4 Implementation and monitoring 56
Annex 1: Our cost-benefit analysis and assessment of other costs and benefits of our measures
Annex 2: Compatibility statement
Annex 3: List of non-confidential respondents to CP10/6
Appendix 1: Final Handbook text
Appendix 2: Material (including examples) supporting the Handbook text
Appendix 3: The implications of the Consumer Credit Act for our redress approaches
Appendix 4: Open letter, listing common PPI sales failings, with a mapping to our Handbook provisions
The Financial Services Authority 2010
This Policy Statement reports on the main issues arising from Consultation Paper 10/6 (The assessment and redress of Payment Protection Insurance complaints) and publishes final Handbook text.Please address any comments or enquiries to:
Julian WattsConduct Risk Financial Services Authority 25 The North Colonnade Canary Wharf London E14 5HS
Telephone: 020 7066 1046Fax: 020 7066 1047E-mail: email@example.com
Copies of this Policy Statement are available to download from our website www.fsa.gov.uk. Alternatively, paper copies can be obtained by calling the FSA order line: 0845 608 2372.
Financial Services Authority 3
Following Consultation Paper 09/23,1.1 1 in Consultation Paper 10/62 we further explained the need for our proposed measures and sought further views on the justification for, and content (as amended) of, our:
proposed Handbook text and supporting material concerning the fair assessment and, where appropriate, redress of Payment Protection Insurance (PPI) complaints;
statements on root cause analysis and firms obligations toward non-complainants potentially affected by recurrent sales problems;
open letter that listed common failings in PPI sales; and
estimate of the costs and analysis of the benefits of our proposed Handbook text, and estimate of the wider impact of our package of measures (in particular from some firms potential reviews of non-complainants sales).
This Policy Statement (PS) reports on the responses we received to the further 1.2 consultation, and on the decisions we have reached in light of them, including final Handbook text.
Background and strategy
Our package of measures stemmed from our serious concerns about:1.3
widespread weaknesses in previous PPI selling practices and the detriment such selling was likely to have caused to a significant number of consumers; and
1 CP09/23 The assessment and redress of Payment Protection Insurance complaints (September 2009) 2 CP10/6 The assessment and redress of Payment Protection Insurance complaints feedback on CP09/23 and further
consultation (March 2010)
4 PS10/12: The assessment and redress of PPI complaints (August 2010)
the industrys poor handling of the increasing volume of PPI complaints, and its neglect of root cause analysis and fairness obligations toward non-complainants.
We anticipated our package of measures would lead firms to:1.4
handle PPI complaints more fairly and consistently, benefiting consumers who may have been mis-sold PPI and who complain, and reducing the heavy burden of cases on the Financial Ombudsman Service (FOS); and
deliver fairer outcomes to consumers who may have been mis-sold PPI but who have not complained.
We emphasised that this package of measures should be seen in the context of 1.5 our wider strategy and work concerning weaknesses in past PPI selling practices, which includes:
24 enforcement actions against the mis-selling of PPI, which have imposed fines totalling 12.6m;
agreeing past business reviews in a number of the enforcement cases;
several major firms delivering appropriate past business reviews of single premium PPI sold face to face with unsecured personal loans;
our pursuing targeted sales assessment work in the credit card and second charge mortgage PPI markets; and
examining the new generation of protection products now being developed to supplant PPI and the risks these may bring and, where necessary, robustly challenging firms on these.
We would also note the industry-wide steps we have taken to improve PPI outcomes 1.6 for consumers including:
securing industry agreement to not include nil refund terms in contracts with new customers and not apply such terms in contracts with existing customers;
securing industry agreement to stop selling single premium PPI with unsecured loans;
feeding into and supporting the package of measures being implemented by the Competition Commission in the PPI market; and
securing agreement with the Mortgage Payment Protection Insurance sector to proactively refund increases in premiums and reverse reductions in cover for customers who experienced these changes to their policy in 2009.
All our interventions in PPI, whether addressing past mis-selling and unfair post-sale 1.7 behaviour, or securing improved sales practices, reflect the strategic importance we attach to retail conduct and the principle of Treating Customers Fairly.
Financial Services Authority 5
Responses to our consultation
We received 34 responses to CP10/6. In Annex 3 we list respondents who did not 1.8 ask for their responses to remain confidential.
Responses from consumer representatives expressed concern at the delay to 1.9 delivering improved consumer outcomes that the further consultation entailed, but mainly supported our:
proposed material on PPI complaint handling as fair, relevant and practical, and likely to lead to a fairer outcome for PPI complainants;
proposed comparative redress approach, and the scope it would give many complainants for maintaining their PPI cover if they so wished (although some expressed doubts about our proposed increase in the referent price from 6 to 9 per 100 of cover); and
statements on firms obligations to consider the position of non-complainant consumers who may have suffered detriment from recurrent PPI sales failings.
Industry responses mainly remained critical of our amended proposals, and generally 1.10 reasserted, and in places amplified, previous criticisms by saying we have:
not demonstrated there was a genuine problem concerning PPI sales or PPI sales complaint handling (having inappropriately and retrospectively raised our expectations of what was required at the point of sale);
proposed a solution concerning PPI sales complaints handling that was inappropriate and disproportionate for the PPI industry as a whole or for its various sectors;
still underestimated the costs of our solution and overstated its likely benefits;
made inappropriate statements about firms obligations concerning non-complainants who may have been mis-sold, which imply an excessive and disproportionate cost to industry; and
underestimated the possible wider prudential impact on the industry of the costs from our measures.
Industry responses also criticised us for:
proposing revised guidance on PPI complaint handling that:
is not balanced about the assessment of evidence about a complaint;
contains flawed presumptions about how the consumer would have acted if a failing by the firm had not occurred;
takes inappropriate and unworkable approaches to redressing upheld complaints (including setting an inappropriately low referent price); and
has an impractically short implementation period; and for
6 PS10/12: The assessment and redress of PPI complaints (August 2010)
conducting a further consultation that remained procedurally inadequate, including because it gave insufficient time or information to allow proper responses.
In addition, some industry responses continued to query the lawfulness of some aspects of our proposals.
Outcome of our consultation
After considering the responses to CP10/6, and carefully weighing the potential 1.11 impact on the industry and consumers in light of our statutory objectives, we have concluded we should press forward with our measures in order to protect consumers, but with some amendments that will address some of the industrys concerns that we believe are well founded. Overall, we have concluded that:
we have made a reasonable analysis of the benefits, and a reasonable estimate of the ranges of costs and of the wider impact, that may arise from our final measures;3
the rationale for our final measures is sound, their scope appropriate, and their likely impact fair and proportionate, despite the large cost implications for industry;
the overall PPI strategy, of which our final measures form a key part, remains appropriate and necessary to address significant consumer detriment;
our approach to consultation has provided more than adequate information on our thinking and eventual proposals, and has given stakeholders ample time and opportunity to apprehend and comment upon them;
we should stand by and retain the open letter having amended:
the failing concerning the inadequate disclosure of terms concerning cancellation during the cooling-off period;
the failing concerning inadequate disclosure of non-pro rata refund terms; and
the text concerning clear, fair and not misleading c