The move follows an FSA press release which criticized car retailers for failing to treat customers fairly when selling payment protection insurance. It says PPI is a complicated, high risk product, but retailers are not fully explaining terms of the contract.
“Some aren’t telling customers that it’s an optional product, and they are not always explaining disadvantages and exclusions,” says Derek Smee, associate of the FSA Small Firms Division.
The FSA and the RMIF have agreed to work together to make the practice surrounding refunds on cancelled single premium PPI policies fairer and more transparent. FSA is talking to a number of retailers about ways to improve their sales standards and will take action against companies that flout the rules.
“We give companies a chance to rectify problems,” says Smee. “Then we check again. If it’s still not happening we will take action. The ultimate sanction is to prevent the company from selling insurance products, but that is a last resort.”
Retailers have until March 2007 to start implementing the FSA’s Treating Customers Fairly (TCF) initiative. It issued a discussion paper last month, inviting comments before the end of the year, that outlines TCF’s requirements.
The aim is to deliver six ‘improved outcomes’ for consumers, including selling products that meet customers’ needs, providing clear information/suitable advice and ensuring no post-sale barriers are imposed if customers want to change products, switch providers, submit a claim or make a complaint.
Next March, the FSA will publish the findings of its review into client money. “There is an issue where payment for the car and the insurance product is made together. They have to be separated – premiums have to go into a separate fund,” says Smee.
He also points to concerns with record keeping. Records protect the dealer as well as the customer and is good business practice.
The FSA has identified a number of issues relating to the Retail Mediation Activities Return, which retailers have to complete twice a year.
The issues relate to three questions:
1 Are you exempt from professional indemnity insurance? More than one-quarter (27%) of dealers claim they are exempt. FSA says: “It’s highly unlikely that they are.”
2 Are you exempt from capital requirements? Almost half (46%) of dealers tick ‘yes’. FSA says: “They are even less likely to be exempt.”
3 Do you have a complaints handling process? Lots of dealers tick ‘no’. A complaints procedure is mandatory.
The FSA accepts that there is a cost issue with the regulation. While it says there are no plans to reduce fees, it is looking at reducing the regulatory burden for retailers, which will cut their administration costs. It is also reviewing the risk-based approach to general insurance and will reveal its findings at the end of the year.
The FSA’s highly complicated website will be simplified with the addition of a motor trade section, which will provide guidance and RMAR help.
FSA wants feedback from the industry about what it wants to see included in this section, due to be introduced early next year.
Also due for launch next year is industry specific training for dealers.
For the first time, the FSA has revealed how many car retailers are signed up. It says 1,800 dealers are fully authorized, and estimates around 2,200 have become authorized representatives.