The new rules relate to the fairness and transparency of refunds agreed between the FSA and the PPI industry.
Clive Briault, FSA managing director of retail markets, said: "This is an excellent outcome that delivers concrete benefits for consumers. When properly sold, PPI can provide valuable protection.
“We have been particularly concerned with so called 'nil refund terms'. These are contract terms that prevent consumers from receiving a partial refund if they cancel a single premium PPI policy for any reason. Such reasons could include consumers repaying the associated loan early or no longer being able to make claims due to changed circumstances."
The agreement, secured in collaboration with a number of trade associations, means that on single premium PPI policies, dealers should:
The FSA has been concerned with the overall fairness and transparency of refund terms in single premium PPI policy contracts and particularly the operation of nil refund terms. While there are firms that already provide a refund, the agreement is designed to make refunds ‘clear and fair’ for all consumers.
Single premium policies involve the consumer paying for the cover for the duration of the loan by a lump sum at the start of the contract. The premium is usually added to the total value of the loan with interest charged on top. This is in contrast to regular monthly premium payments which incur no further cost to the consumer if cancelled.
The FSA's work on nil refund terms is part of its major programme designed to improve standards in the PPI market.