FSA turns its attention to mortgage payment protection insurance
MORTGAGE SOLUTIONS - 23RD MAY 2005
Mortgage payment protection insurance and fairness of contracts will come under the spotlight of the Financial Services Authority (FSA) as it finalises it position on contract fairness.
Anna Bradley, director of retail themes at the FSA, said all regulated firms would have to meet a set of common standards when writing contracts for their products and services. It said one area of concern was premiums for certain life and long-term health insurance contracts.
She said: “Being fair is all about getting the right balance between the firm and the consumer. For example, the power to vary insurance premiums in long-term health contracts is not inherently unfair and consumers may benefit from a lower premium. But the contract cannot be so one-sided that the firm can then do as it pleases when it is reviewed.”
Last month, the FSA said it would also include a focused review of payment protection insurance. it said it would look at the selling practices of a sample of firms and a desk-based review of the product disclosure provided to consumers. Other tools such as mystery shopping may also be used within the project to complement a wider review of insurer compliance with insurance regulatory requirements.
Chris Cummings, director at the Association of Mortgage Intermediaries, said while it was good the FSA was being proactive in its regulatory role, mortgage payment protection insurance needed to have a different regulatory standard applied compared to other insurance contracts like credit cards.
He said: “Historically, intermediaries have been pushed by the Government and the Council of Mortgage Lenders to talk about mortgage payment protection insurance and, if they did not, they were told they were not doing their job properly. Tat was applied at the time brokers cannot be judged respectively on what they did pre-regulation.”
Simon Burgess, managing director of Burgesses, said brokers should not just attach mortgage payment protection insurance to mortgages sales and should consider all options available. He said: “Mortgage payment protection insurance are paid directly to the lender. Accordingly, income protection clients become automatically ineligible for mortgage income relief from the State. This can cost an adviser dearly and I know of at least one firm that is currently being sued for not fully explaining this fact of a client.”
