Standard Life says it is working closely with the ABI and the Council of Mortgage Lenders to develop a process where endowment compensation is paid directly to the lender.
The company says the discussions are still in the very early stages but it is keen to consider the issue in detail as it says that evidence has arisen to suggest that some consumers are not using the compensation they receive to lessen the shortfall in their endowment but for other purposes.
Former Building Societies' Association chairman John Goodfellow has raised this issue previously, saying it is ridiculous to pay compensation to correct a problem and not ensure the money is being used to correct the problem as people are likely to spend the money on something else and come back later with another claim.
The ABI says it has agreed wording with the CML in its offer letter that tells customers they should consider using their compensation payment to repay their outstanding debt, letting them know that if they do not do this they will need alternative methods for repaying their mortgage.
The Financial Ombudsman Service is against forcing consumers to pay compensation into their short- fall, saying it would be tantamount to a nanny state.
CML spokesman Bernard Clarke says: “We are discussing the issues and exploring the options at the moment. We have an open mind as to whether we could extend this to do something further, for example requiring customers to pay the money into their shortfall.”
Standard Life customer service director Garry Morrison says: “We are working with the ABI and the CML to develop a process whereby compensation is paid directly to the lender.”