Building Societies Association chairman John Goodfellow has hit out at the way the payment of endowment misselling claims is being handled by the Financial Ombudsman Service.
Payouts are handed over to the claimant, who has no obligation to use the money to help make up the shortfall on their policy.
But Goodfellow believes it is ridiculous to pay compensation to correct a problem and not ensure the money is being used to correct the problem, as lenders would easily be able to tell if the money was being paid into the mortgage or not. He says with pension misselling claims the money always has to be paid into the pension and believes this should be the basis for endowment claims.
He says people are likely to spend the money on something else and come back years later with another claim.
Goodfellow believes: “The FSA should be saying that the only basis on which they will pay out on an endowment claim is if the money goes into the mortgage shortfall. It is mad to pay compensation to correct the problem and not ensure that the money is actually being used to correct the problem. Pensions claims always go directly into the pension, and so endowment claims should go directly into the mortgage.”
FOS spokeswoman Iris Baker says: “When money does change hands, the onus is on the firm to explain fully what the money is for and if the consumer chooses to spend it that is their decision.”