FSA plans payment protection insurance cancellation clauses
MORTGAGE STRATEGY - 26TH MARCH 2007
The Financial Services Authority is planning to implement cancellation clauses in single premium payment protection insurance products to allow holders to leave the schemes and receive refunds.
At the moment, one of the main problems with single premium payment protection insurance is that consumers are locked in. However, industry sources predict that the FSA will implement get-out clauses within a month to try to restore consumer confidence in payment protection insurance following its referral to the Competition Commission by the Office of Fair Trading.
Simon Burgess, managing director of Britishinsurance.com, says: "I believe the FSA will be introducing cancellation clauses to payment protection insurance, with retrospective clauses for existing customers, and the payout looks like it will be pro-rata if customers decide to end their insurance schemes.
"Previously, payment protection insurance worked against treating customers fairly because there were too many barriers against getting out of the plans. This is the first step towards remedying this situation, and it is a welcome move."
But a source warns: "The kicker is the tariff if a lender is able to decide how much of a refund to offer."
A spokesman for the FSA confirmed it is in talks to implement the cancellation clause.
He says: "Only customers who currently have payment protection insurance will be eligible for the retrospective clause. It will be open to firms with what they do with customers who wish to cancel their payment protection insurance."
However, he refused to give a firm date when the clause would be implemented.
A spokesman for the Association of British Insurers says: "Our members agreed a year ago to offer cancellation clauses. This was a result of the industry getting together and recognising this was an issue after investigations by the FSA and the OFT."
