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FSA tightens up on selling of PPI

FSA officials are visiting motor retailers and other small businesses until the end of this month as part of their monitoring of payment protection insurance (PPI).

Andrew Honey, head of insurance in the Small Firms Division of the FSA, said: “We will visit more than 100 firms to see if there has been improvement in selling practices since last year, when we found some firms were getting things wrong, particularly when selling PPI alongside credit, such as motor finance, and loans.”

Nine businesses have been subject to enforcement action by the FSA in the last year, two of which were motor retailers. Cathedral Motor Company, which trades as Arbury in the Midlands, was rapped in March over failing to monitor its staff and training on PPI sales.

That followed similar findings in December at Eastern Western Motor Group, which was censured over record keeping, training and not providing customers with a statement of total PPI price.

Honey added: “During visits we speak to firms’ management and those selling to customers to assess the adequacy of sales and advice processes, including the controls in place. We may also look through files to see what story they tell about the information given to customers and the stage of the sales process when that information was provided. This gives us a good overview of whether customers are likely to achieve a fair deal.”

The FSA says many dealers find the visit positive, as they are able to work with the organisation to make any necessary improvements. Getting the sales process right and ensuring the documentation is clear can benefit both customers and the business, says Honey.

The statement of demands and needs is an important part of the information dealers must give to customers when selling PPI. Honey said it is only of use if it provides a clear picture of customers’ needs and why they have been sold a product.

#AM_ART_SPLIT# Most dealers use templates or online tools to create the statements, showing a clear path from assessment of needs through to the product chosen.

However, some statements of demands and needs need to be tightened up, and dealers must ensure their staff are disciplined about completing them, said Honey.

He added: “We expect improvements this time round, with firms taking the customer-focused approach from their main business of selling cars or motorbikes into their regulated insurance sales. We will be feeding back our findings, including examples of good and poor practice that we have seen, later this year.”

Shane Craig, managing director of PPI provider Paymentcare, says one way dealers can help ensure customers are treated fairly is through a monthly paid policy. Alternative single-premium PPI policies have attracted criticism for not being in the customer’s best interest.

“The cost of these policies is added to the loan and the whole amount then gathers interest, making the PPI more expensive than necessary. A monthly paid policy from an independent provider offers better value for money and can be cancelled at any time, ensuring that customers only pay for the cover they actually need,” added Craig.

#AM_ART_SPLIT# FSA advice on selling PPI fairly:

  • Make sure staff explain clearly what the policy will cover. There is no point in a customer buying a product that they are not eligible to claim on.

  • Be clear about what it will cost. There are different ways of paying the premium and some are more costly than others. The premium, any interest payable and the total amount payable – premium plus interest – should be clearly stated

  • Make sure the customer knows that buying PPI is optional.

  • Click here for information on the FSA’s PPI project.
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