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that they can buy PPI from other providers, so described point-of-sale PPI as the "single tions this will have under ICOBS rules for
they rarely shop around to compare prices and biggest barrier to competition in this market", those firms continuing to make PPI sales, it is
terms and conditions of PPI policies, and rarely and banning it "will open up the market, giving clear that the journey we have travelled in rela-
switch PPI providers. The resulting 'point-of- consumers time to search the market once they tion to PPI is nowhere near over.
sale' advantage makes it difficult for other PPI have secured their credit, and giving competing
providers to reach credit providers' customers providers, who at the moment struggle to get a Muddying of the water?
and in the absence of such competitive pres- look in, the opportunity to offer their PPI Whilst, without doubt, there have been wrongs
sure, consumers are charged high products to these consumers". committed in the past – and the CC is right to
prices. The CC expects that the measures will come ensure that those consumers caught in disadvan-
CC deputy chairman into force during 2010, with the information tageous arrangements must have the right to opt
and inquiry chair- remedies in place by April 2010 and other out with a pro-rata refund – the question
man Peter measures by October 2010, each to coincide remains that do the changes present a transpar-
Davies with Government common commencement ent solution or are they simply providing a
dates for new legislation and regulation. greater muddying of the water?
The answer is open to debate. What is obvious
Intervention is that the new requirements will result in a mar-
To coincide with the CC report, the FSA simul- ket shift in the supply and efficiency of the mar-
taneously published their findings on the reme- ket which could potentially restrict consumer
dies included in the CC's final report and choice through fewer suppliers and products
welcomed this intervention to enhance compe- being available on the market. To prohibit the
tition in PPI markets and to complement on sale of PPI, at the point of sale or finance, leaves
work to improve sales standards. the door open for significant risk to the con-
In its paper the FSA has clarified conduct sumer at a time when unemployment cover has
of business requirements for firms selling never been more necessary. This poses the ques-
PPI, which are set out in the Insurance tion of what if a responsible borrower, who
Conduct of Business sourcebook (ICOBS), agrees a loan at lunchtime, is called into their
to ensure that firms are clear that these manager's office to be given a redundancy notice
standards and requirements remain in at 9 am the next day? Is it morally acceptable to
place. Special expectations have been set prevent such a customer from purchasing cover
out around ICOBS 6.1.5R - which requires to protect the loan from inception? Such a sce-
that firms provide appropriate information nario again leads us to more questions rather
about a policy in good time and in a com- than answers.
prehensible form so that a customer can make Another question generated by the inquiry is
an informed decision about the arrangements how underwriting experience will be affected? It
proposed, and ICOBS 6.1.8G - which provides will be interesting to analyse the profile of the
guidance on what firms should consider in customer who is pro-actively motivated to pur-
determining what is "in good time". Firms chase PPI subsequent to the sale of a loan or
arranging a payment protection contract must finance. Are these customers going to be respon-
also meet the eligibility checking requirements sible forward thinkers, or will they be customers
set out at ICOBS 5.1.2 - which requires firms to who may know that they have the most to worry
take reasonable care to ensure that customers about?
only buy a policy under which they are eligible
to claim benefits. If at any time while arranging Challenging sale
the policy, the firm finds that part of the cover Those of us with experience in financial services
does not apply, it should inform the customer know that insurance is rarely regarded as an
so he can take an informed decision on exciting purchase by consumers, particularly
whether to buy the policy. when they have competing demands for their
The FSA reports that it will continue money. Many insurances have to be actively and
to look closely at the full range of positively "sold" – fairly, transparently and hon-
regulatory tools and actions avail- estly – by pointing out the relative costs and ben-
able to ensure that firms selling efits to the insured party. Customers need to be
PPI meet all requirements to made aware what PPI is, what security it could
enable customers to make potentially offer for their repayments and be
informed purchasing encouraged to buy these policies rather than put-
decisions. This may ting them into tomorrow's pile of things to do.
include consulting on There has rarely been a time when borrowers
new rules if necessary. are in greater need for such a product but in
However, despite these challenging times perhaps the greatest chal-
the publication of lenge of all will be to restore confidence in this
the CC report product. Time may well bring trust as consumers
and the FSA's experience better buying conditions and less
detailed consid- miss-selling scandals but this will not be an easy
eration of the or quick win. The sector, as a whole, must work
complex disclo- hard to raise the perception of the market start-
sure ramifica- ing from now.
www.mortgageintroducer.com March 2009 Mortgage Introducer
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