Companies which sell payment protection insurance (PPI) have been reprimanded for failing to check whether those buying it would be barred from using the policy.
The warning follows undercover research by the Financial Services Authority (FSA) which found mis-selling and a lack of proper controls.
PPI schemes are meant to help customers continue loan repayments if they lose their job or become ill. But a third of 45 firms surveyed failed to take reasonable steps to ensure that customers did not buy policies on which they could not claim or which provided only very limited cover. The FSA isn’t naming the companies as it’s considering enforcement action.
The financial watchdog said advice on PPI was often poor and some firms encouraged staff to sell policies to people who didn’t need them.
Shocking but not surprising
Mike Naylor, Principal Researcher at Which?, said: ‘We have said for years that PPI on personal loans and credit cards is not being sold as it should be. The results of the FSA investigation are shocking, but not surprising.
‘There’s a real danger that many people have been sold unsuitable policies, are paying more than they thought or don’t realise they won’t get a lot of their money back if they cancel the policy.
‘If you’ve taken out a loan, credit or store card, check to see if you were sold PPI and whether it will pay out if you are unable to work due to sickness or unemployment. If the policy does not suit your circumstances or you weren’t aware that you were sold it, you can complain to the company that sold it to you. If you are unhappy with how your complaint is handled you can go to the Financial Ombudsman Service.’
The three main trade associations in the financial services industry, the Association of British Insurers (ABI), Apacs and the British Bankers’ Association (BBA), maintain that if sold properly, PPI provides important protection for consumers.
But they said they took the FSA’s concerns seriously and were keen to establish that the report should not be seen as indicative of the whole industry.