The Financial Services Authority (FSA) has ordered mortgage lenders and insurers to pay back £60m to consumers whose mortgage payment protection insurance (MPPI) premiums increased this year.
A deal has been agreed with the Association of British Insurers (ABI), the British Bankers Association (BBI), the Building Societies Association (BSA) and the Council of Mortgage Lenders (CML). Firms have agreed to write to those consumers affected by MPPI policy changes in 2009 and fully refund any money they are owed before the end of June 2010.
Which? first complained about this issue in May 2009 and welcomes the FSA’s decision. The regulator acted out of concern over the terms in some consumers’ MPPI contracts, which did not always make it clear under what circumstances the cost of their insurance – and the level of cover it provided – could change.
Consumers who have seen the cost of their MPPI policies increased or their level of cover reduced in 2009 will have the extra they have paid in premiums returned to them, or their original level of cover reinstated.
Firms will also offer to reinstate MPPI policies that have been cancelled by consumers in 2009, if this was done within two months of a premium increase or a reduction in the level of cover provided.
In addition, lenders and insurers have agreed to freeze MPPI premiums and cover for existing customers until at least 31 December 2009. They have also said customers’ MPPI contracts will be amended. These contractual changes should make clear to consumers the circumstances in which the cost of MPPI, and the cover it provides, can be amended.
Quick payback needed
Lucy Widenka, Which? personal finance campaigner, says: ‘We’re pleased that the FSA has taken action against firms who’ve effectively been selling people umbrellas then trying to take them away at the first sign of rain.
‘Customers must be refunded as quickly as possible, as many could be in financial difficulty as a result of their cover being reduced. What’s more, offending firms must be named to make MPPI policyholders aware this could affect them.
‘The fact remains that MPPI is not a great product – just 28% of premiums collected are paid out in claims – so we’d urge consumers to shop around for a product that best suits their needs, or consider an alternative to MPPI to protect their finances as a whole.’
For impartial information on all kinds of protection insurance products and tips on how to find the right cover for you, read the Which? guide to understanding protection insurance.
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