If something is good for consumers and you regulate it too closely and thus stop it being widely available, you are causing consumer detriment. The FSA is about to do something that will cause many consumers to suffer destitution. It seems too late to stop it. This is a cautionary tale.
It starts, as ever, with foul market behaviour. The worst cases on the recent PPI scandal were those when the lump sum cost of the PPI was added to the debt it was covering.
The cost of the debt insurance after interest was often more than the cost of the thing being bought.
Eventually, the FSA stopped this scam and told the missellers to compensate the ripped off and to disclose at the point of sale the total cost of the insurance premium including interest. Dead right.
But what happened next turned a good rule into consumer detriment. The FSA decided that this total premium disclosure should apply not just to lump sum premiums paid for by debt, but also to all monthly-paid long-term cover.
They gave no clear reason for this extension but whether it is lump sum PPI or £5 a month life cover, the insurer has to disclose in writing the total premiums over the whole term as a lump sum.
Of course, the quickest way of putting a consumer off buying something is to paint it in its most expensive light. So, if what is being sold is good for consumers, this impediment to sales will cause consumer detriment. So good regulation has crept into bad regulation, unless you think the public have too much life and disability protection already. The FSA assure us they do not think this.
It gets worse though. Quite separately to this, an ABI critical-illness cover review in 2006 led them to draft a written explanation that every buyer gets sent. The FSA found this worked well and so, when their own research showed that consumers buying CIC over the phone did not know enough about what they were buying, they got the ABI to define what points sellers need to make to buyers when selling CIC over the phone.
That is proper stuff and it is due to become compulsory for everyone from January.
But then in a leap of regulatory logic, someone at the FSA decided that if critical illness is being explained in full in this telephone conversation, so must be total premium disclosure and not then just for CIC, but for life and income protection too. The upshot is that from the start of next year, all those who sell protection under Icobs rules will have to explain the price of the cover, not just in the monthly way all consumers use when budgeting, but as the total premium payable over the term.
So if 20-year cover is right for a young family, then the £20 per month decision will become a £2,400 decision, with no reference made to the fact it is not a binding contract on the buyer or that inflation will render any amount worth much less over 20 years. That will put a few young families off protecting themselves.
In the case of foul PPI, it was meant to, but the FSA does not think it will put them off good protection. They will be wrong, at least sometimes, and a young family will in due course be rendered destitute by their error.
Tom Baigrie is managing director at Lifesearch