Regulator strikes deal with payment protection insurance providers over
THE HERALD (GLASGOW) - 30TH MARCH 2007
The Financial Services Authority has put a further squeeze on the selling of payment protection insurance by outlawing clauses which deny consumers partial refunds if they cancel a single premium policy.
The FSA said consumers would "benefit from a series of measures relating to the fairness and transparency of refunds" it had agreed with the payment protection insurance industry.
Banks and other sellers will not be able to include "nil refund" terms in future contracts, and will have to contact existing customers on such terms to explain their entitlement to a refund in future, should the policy be cancelled.
They will also have to demonstrate how a partial refund is calculated with regard to reasonable costs.
Clive Briault, the FSA's managing director of retail markets, said: "This is an excellent outcome that delivers concrete benefits for consumers."
The need to cancel a policy could include consumers repaying the associated loan early, or no longer being able to make claims due to changed circumstances.
Shane Craig, managing director of Paymentcare, a low-cost provider of standalone payment protection insurance, said: "This announcement represents another positive move in the initiative to ensure that payment protection insurance customers receive the fair treatment they deserve."
However, Simon Burgess of British Insurance, another low-cost provider, said the announcement was "lightweight" and lacking bite. He asked: "Why hasn't the FSA agreed with providers that consumers will receive a refund on the interest they've paid as well as the premium, and why isn't it on a pro-rata basis? Consumers who pay up front for a five-year policy and want to cancel after two years, should get three years' worth of premiums back."
Burgess said the FSA should ban single-premium policies altogether as they do not comply with the regulator's standard of "treating customers fairly".
