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Basel brush

According to a recent report, a homosexual couple applied at an HSBC branch for a mortgage that required life cover and were told they could only take out insurance if they took an HIV test.

In fact, HSBC, in line with other lenders, does not insist on life insurance as a condition of a mortgage. Its mortgage brochure states that its mortgages have no insurance tie-ins but that “it is important in most cases for you to have adequate life insurance”.

Even though the couple chose to arrange their mortgage direct with a lender rather than use an good indepen-dent broker, the simplest thing for them to have done when told by the bank they must have an HIV test, to which they objected on principle, was to say they would arrange their life insurance elsewhere.

If this was an advised sale, the strong suspicion must be that the reason they did not do this was that their HSBC mortgage adviser misled them into believing that life insurance was compulsory if they wanted the mortgage and would not have volun-teered the information that it might be possible to get life insurance through an alternative company without taking an HIV test. Indeed, being a tied adviser, he or she may not even have been aware of that.

This mortgage sale could have been seriously non-compliant as the customers did not understand the terms of their mortgage in respect of life insurance requirements and it is hard to see how the bank met the FSA’s requirement for information to be “clear, fair and not misleading”, let alone its more general principle of treating customers fairly.

HSBC’s remuneration policy for mortgage advisers may be a factor as I understand its advisers get no credit for selling a mortgage but are rewarded for sales of protection products.

There are other examples of banks incentivising staff to sell products most profitable for the bank rather than those most suitable for the customer. Many readers will have experience of their bank and/or credit card trying to flog them grossly overpriced payment protection insurance. Now that the FSA are looking at remuneration policies for sales staff, firms with inappropriate policies may find it worth while reviewing them.

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