Published in the Financial Times 16 October 2009
By Josephine Cumbo
The Financial Services Authority (FSA) has apologised for giving advice that could have seen mortgage loan insurance customers wrongly denied redress for unfair changes to their policies.
The City regulator made the apology after it emerged that staff advising small financial firms had wrongly interpreted the terms of its £60m compensation agreement secured last week with providers of mortgage payment protection insurance (MPPI)
Under the deal, providers must offer refunds to 1m customers who were subjected to unfair premium increases since the start of the year. Providers must also reinstate cover for customers who cancelled their policies within two months of such a premium increase or who suffered unfair cuts to their policy benefits.
Anyone who sought clarification from the FSA on which customers should get their cover reinstated were wrongly told that those who cancelled before a price rise or benefit cut came into effect would be excluded from the redress agreement.
“We apologise for any incorrect advice our contact centre may have given on this issue,” said Adam Richards-Gray, FSA spokesman.
“The spirit of the agreement would require firms to offer to reinstate the cover of any customers who cancelled their policy within the notice period or within up to two months of any changes being implemented.”
MPPI is designed to meet mortgage repayments in the event of accident, illness or forced redundancy. Last week’s agreement was to address the FSA’s concerns on the terms permitting any changes to policies, and how clearly they were disclosed.
But the FSA conceded the agreement may have not made clear at what point the two-month clock started ticking for customers who cancelled cover.
Bob Cook, of the online broker Best Income Protection, (a trading style of Platinum Financial Consulting) was wrongly advised by the FSA. “The FSA was adamant that the agreement did not apply in the notice period,” he said. “This would have meant that dozens of my customers would have missed out on their rightful redress if I’d acted on the FSA’s advice.”
The Association of British Insurers said that customers who had changed their MPPI policy terms since January 1 2009 could be confident that they would be covered by the agreement. Providers have until the end of June 2010 to let customers know whether the agreement affects their policy.
● The Competition Commission has been ordered to reconsider its plans to ban the sale of payment protection insurance alongside personal loans and credit cards, following a challenge by two high street banks.
Earlier this year, the commission announced that it would ban banks and building societies from selling the insurance at the same time as another financial product.
Instead, they would have to wait seven days before contacting the customer to see if they wanted to buy cover. The ban was challenged by Barclays and Lloyds Banking Group.
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