FSA and OFT concern over new wave of PPI products
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The FSA and the Office of Fair Trading have warned insurers, banks and distributors about developing alternative payment protection insurance products which pose the same risk to customers as PPI.
The FSA and the OFT have today published a joint guidance consultation on payment protection products such as short-term income protection and debt waiver options on mortgages and unsecured loans.
It states there are product risks associated with payment protection products such as not identifying the target market, for example offering a short-term income protection product to someone who is unemployed or has sufficient alternative sources of income such as existing cover or savings or pensions.
The FSA, which regulates standalone cover and insurance products linked to loans, is also concerned that payment protection products could be sold on the basis of secondary features such as hospitalisation benefit which are unlikely to be claimed for.
It is also concerned about caps on maximum benefits, product exclusions and the ability to cancel or switch cover.
The regulator has also highlighted that debt freeze and debt waiver options on mortgages and loans cannot be cancelled without cancelling the loan contract and, in the case of a mortgage, without the borrower incurring an early repayment charge.
The FSA also wants to see risks posed by payment protection products managed through the product’s life cycle. It gives the example of an insurer or a bank designing a product assuming a certain level of savings, but distributing this through firms such as sub-prime mortgage lenders whose customers do not meet this requirement.
It warns firms not to impose minimum sales volumes which are unrealistic compared to the size of the target market, and also calls on firms to ensure sales staff do not have “inappropriate incentives” to sell the product outside of the target market.
The FSA and the OFT says in the guidance: “We are aware that some firms have developed, or are seeking to develop, new forms of protection that aim to meet similar consumer needs to PPI. These may, however, pose similar risks to consumers, and the previous failings identified with PPI must not be repeated.
“Both the FSA and the OFT are committed to ensuring that consumers are adequately protected when purchasing payment protection products. We will continue to monitor developments in the market and will consider taking action under our respective powers where we identify that firms’ products and/or practices risk causing detriment to consumers.”
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