FYI: Payment protection insurance
NICHE MORTGAGES - 1ST SEPTEMBER 2007
Does the FSA’s bid to educate consumers in payment protection insurance fall under its remit, asks Simon Burgess, managing director, Britishinsurnace.com?
In its bid to help consumers make informed choices about payment protection insurance, the Financial Services Authority (FSA) is currently constructing comparison tables that it will publicise on its website in the spring of next year.
In the main this is a positive step, although there are a number of issues that need to be dealt with to ensure the best results are achieved in light of the time, effort and resources that have been invested.
In the first instance there will be some people who feel that if the regulator is going to publish figures on the personal loan market and surrounding payment protection insurance, then it should do the same for second charge loans. These may not fall under the remit of the FSA but, then again, neither do unsecured loans.
By publishing information about what is available and helping consumers see how competitive secured loan products and protection are, surely the FSA would be providing a valuable service and drawing a constructive comparison with the unsecured loan market?
The regulator already has a table comparing mortgage products, but this only deals with mainstream products and does not feature sub-prime deals. Ironically, it is often the payment protection insurance sold alongside sub-prime mortgages that creates problems and so again this is an area the regulator should further investigate.
The regulator has done a good deal of research with consumers to see if comparison tables would be useful and certainly its findings would suggest that this is the case. According to the work carried out, consumers are not confident about financial services and products or the information that is currently available on them. Many do not shop around and feel that independent and authoritative information would be beneficial.
There is little doubt that this is the case, but there is also an argument to suggest the FSA could do more to protect consumers by being harder on product providers and ensuring they offer best value to consumers in the first place.
The regulator has invested a huge amount of time and money in establishing a regulatory framework that seeks to put customers at its very centre. It has created rules that highlight the need to treat customers fairly and which outlaw any firm that seeks to profit by offering unfair products to clients.
The problem, however, is that there is no definition as to what is and what is not fair and, as such, there exists a grey area through which the regulator is unprepared to draw a line.
This is fair enough and it would be difficult to create a black and white definition of what constitutes unfairness for each and every product in the payment protection insurance market. However there is no doubt that the regulator must significantly trim the width of the hinterland that lies between fair and unfair insurances and make sure providers are clear that those straying wide of the mark will be published.
The FSA will claim that in light of the review into the payment protection insurance market that is currently ongoing, the work it is doing with the Competition Commission and the links it has forged with industry bodies, it is already doing this.
However, given the problems that continue to exist, many feel effective follow-up action has been too slow to come after numerous reviews of the payment protection insurance sector have highlighted where the problems lie.
The hope is that by better educating consumers, they will be better placed to act responsibly and make informed decisions for themselves. Giving them independent information is certainly one way of doing this, but one wonders what the FSA strategy will be when it comes to marketing that information.
Certainly there will be few firms paying their dues into the Canary Wharf coffers that will be happy to see large amounts of money being spend on advertising and marketing consumer advice.
Many will feel that this is not where the regulator should be spending its money and it would do better to team up with established consumer bodies in its bid to get its message across.
It would be interesting to see just how many consumers currently visit the FSA website to look at the comparison tables it already has on offer if the tables are going to be successful, then getting them to as wide an audience as possible is imperative. Who has the FSA spoken to when it comes to offering its tables to the public? Have they been made available to independent information providers in the market? Has the regulator contacted unions, councils, further education bodies or major employers?
Getting all of these people on board will help drive traffic to the information being provided and that is going to be crucial if it is to have any effect on the buying habits of the country and protect consumers making a mistake through ignorance.
The regulator also needs to question how accessible the information it is offering is. Despite its best efforts, plain talking has never been the first thing that springs to mind when it comes to the FSA. Communications are long winded and the real message is often lost in the surrounding text.
At the moment there are a number of questions and caveats that relate to the comparison tables already provided by the FSA. Given the attention span of the average person when it comes to personal finance, the regulator must seek to withdraw every barrier possible when it comes to consumer understanding.
Drawing a line between accessibility and the level of information provided will be difficult but, if nobody gets past the first page, then the information is useless anyway.
Providing consumers with access to clear and concise information on payment protection insurance and personal loans is important, but getting the information into the right format is going to be essential.
It is also going to be crucial that the information is given as wide an audience as possible and is used in conjunction with other initiatives to both improve consumer awareness and reduce the poor practice of providers themselves.
The level of activity in the payment protection insurance market at the moment is fantastic and whether it is regulators, legislators, providers or consumer associations, the fact everyone is pushing for a better environment for consumers is very welcome.
Given this level of activity it is important therefore that all of the effort and attention is not wasted and we really make the most of the opportunities we have to improve things for consumers.
The FSA’s comparisons tables are another step in the right direction, but they are not the finished article.
