PPI rules open door to retrospective regulation, says BBA

[di30]

PPI rules open door to retrospective regulation, says BBA:


http://www.moneymarketing.co.uk/regu...020000.article

The British Bankers’ Association has warned the FSA’s complaints handling measures for payment protection insurance effectively opens the door for retrospective regulation.
The BBA filed papers to the High Court on Friday launching a judicial review against the FSA and the Financial Ombudsman Service in an attempt to bring clarity to the FSA’s PPI complaints


The FSA published a policy statement in August outlining a package of measures to protect consumers buying PPI which included guidance on paying redress and when firms should review past complaints.

In a customer factsheet explaining why the BBA has brought the review, the trade body says the FSA has advised the industry to consider complaints based on both the conduct of business rules that applied at the time and the regulator’s guiding principles for doing business.

In the document the BBA says: “We believe the FSA is effectively creating a precedent which permits it to apply new rules to previous sales - even where those sales were regulated by other FSA rules.”

The BBA argues that this could have implications for other regulated products.
The BBA says: “Therefore this ruling might not only affect customers who have bought PPI, but might also set a precedent that could affect all products regulated by the FSA.”

The FSA plans to contest the judicial review.
It is expected that firms will continue to handle PPI complaints while the review process continues.

[di30]

Re: PPI rules open door to retrospective regulation, says BBA

http://www.out-law.com/page-10509

Payment protection insurance: complaints handling and redress


This guide is based on UK law. It was last updated on 18th August 2010.

The Financial Services Authority (FSA) is pressing ahead with new guidance on handling and redressing customer complaints about payment protection insurance (PPI), despite industry criticism that the measures are inappropriate and disproportionate.

But the regulator has dropped a proposed rule that would have required firms to review all the PPI mis-selling complaints they have rejected since 2005. Nor is it planning to implement an industry-wide review of past business under the Financial Services and Markets Act 2000 (FSMA).

The finalised text, published in a policy paper on 10th August 2010, will form part of the dispute resolution sourcebook (DISP) in the FSA Handbook. Firms have until 1st December to comply with the new regime.

The paper is the final stage in a consultation process that began in September 2009. Although the original proposals were strongly supported by consumer groups, industry responses were almost universally hostile.

In March 2010, the FSA published a set of revised proposals, setting aside the review rule and making some clarifying amendments, but otherwise broadly confirming its approach. The feedback from this second consultation has not persuaded the regulator to change its mind and the final DISP text remains largely unchanged.

The FSA has, however, raised the status of the sections on redress from "guidance" to "evidential provisions". Whereas guidance is illustrative, but not binding, compliance with an evidential provision will be taken as evidence that the firm has complied with FSA requirements.

It is also considering whether permanently to extend the time limit in which consumers can refer their PPI complaints to the Financial Ombudsman Service (FOS).

The normal FOS deadline is six months after the consumer receives the firm's final response. In May this year, the FSA temporarily extended this limit for complainants who received a final response between 28th November 2009 and 28th April 2010. That extension ends on 27th October. The regulator says it will make its final decision "in light of developments over the coming months".
Criticism

One of the main themes of the industry response to both consultations was that the FSA was inappropriately and retrospectively raising the standards for sales practices.

Respondents argued that the guidance (and the accompanying open letter to the industry listing common PPI sales failings) introduced requirements that were not to be found in the Insurance Conduct of Business Sourcebook (ICOBS) or its predecessor rules. The overall effect was one-sided and unbalanced and made it almost impossible for a firm to reject any PPI complaint.

In response, the FSA maintains that firms have always been required to treat customers fairly (Principle 6), and to pay due regard to customers' information needs and communicate that information in a way that is clear, fair and not misleading (Principle 7). These principles applied whether or not there were specific rules or requirements in ICOBS for certain disclosures to be made or made in a certain way.

"It is a fundamental aspect of outcomes-focused and principles-based regulation that the Principles apply in situations where the need for a detailed rule or guidance has not been established," the policy paper states. "The onus remains on firms to comply with the Principles".

As for balance, the March paper confirmed that the FSA's aim is simply to make firms' assessment of complaints "less unbalanced":
"None of this is to deny that there may often be genuine practical difficulties in establishing what happened, particularly around some aspects of a sale that was conducted mainly orally, where it may be hard (without recordings) for either side to provide definitive evidence," the March consultation paper states.

"In these kinds of cases, the firm simply must do its best to proceed in line with the specific considerations set out by the guidance to give appropriate weight and balanced consideration to all the available evidence."
Scope

The guidance applies to complaints about the sale of all types of PPI contract, whatever the basis on which it was sold and irrespective of whether the policy is still in force, was cancelled during the policy term or ran its full term (DISP App 3.1.1G).

For banks and insurers, the new regime covers complaints about PPI sales going back to 1st December 2001.

Brokers and intermediaries, however, have only been subject to FSA regulation since 14th January 2005. The FSA has confirmed that DISP will apply to complaints against intermediaries about earlier sales if the intermediary was a member of the General Insurance Standards Council (GISC) at the time of the sale and the subject matter was covered by its rules.

The GISC code required members to act fairly and reasonably when dealing with customers and to provide enough information and help so that customers could make an informed decision. Although the code did not include many of the more detailed provisions now found in ICOBS, the FSA is satisfied that its general principles are sufficiently similar to those in the Handbook.

Sections in the final DISP text which have been given the status of evidential provisions will, however, only apply as guidance to complaints about pre-2005 sales (DISP App 3.10).

Are such complaints already time-barred? Under DISP, a consumer must make a complaint to the Financial Ombudsman Service (FOS) within six years of the sale, or three years from when he knew (or ought reasonably to have known) he had cause for complaint, whichever is the longer.

Given all the publicity about PPI, many respondents to the consultations argued that the three-year time limit will have expired in most cases.
The FSA, however, takes the view that general media coverage, or even FSA comment, would not be enough to give rise to the sort of specific knowledge required by DISP.

Although some consumers may be deemed to have had sufficient awareness before January 2008 (so that their complaints will be out of time by January 2011), the FSA says this is unlikely to apply generally. In any event, the final decision will rest with the FOS.

For non-GISC sales (outside the scope of DISP), complainants will have to rely on common law principles, such as negligence or (where the broker was acting as agent of the insurer) the duty of utmost good faith or the general law on misrepresentation.
Handling complaints

The guidance defines complaints as complaints "which express dissatisfaction about the sale, including the rejection of claims on the grounds of ineligibility or exclusion (but not matters unrelated to the sale, such as delays in claims handling)", (DISP App 3.1.1.G).

The phrase "breach or failing" is used throughout to describe cases where the firm's conduct of the sale failed to comply with the rules or was otherwise in breach of a duty of care or any other requirement of the general law, taking into account any relevant materials published by the FSA, other regulators and the FOS (DISP App 3.1.2.G).

Where the firm decides there was a breach or failing, it should consider whether the complainant would have bought the PPI in the absence of that breach or failing. Two rebuttable presumptions apply: that the complainant would have not bought the PPI at all, or (in the case of single premium PPI) that he would have bought a regular premium policy instead (DISP 3.1.3G).

There may, however, be instances where the firm concludes that, despite its breaches and failings, the complainant would still have bought the same policy (DISP 3.1.4G).
Assessment

Overall, the firm should be looking to establish the true substance or nature of the complaint rather than taking a narrow interpretation of the issues raised. In particular, it should not focus solely on the specific way the complaint has been expressed (DISP App 3.2.2G).

This will sometimes mean contacting the complainant directly to understand the issues raised. Firms, are, however, expressly warned not to use this as an excuse to delay the assessment (DISP 3.2.3G).

Irrespective of the main focus of the complaint, if it raises issues about the original sale or a subsequently rejected claim under the policy, the firm should proactively consider whether the same issues underlie both the sale and the claim and assess the complaint accordingly (DISP App 3.2.4G).

Similarly, if the assessment of an individual complaint uncovers evidence of a breach or failing not raised in the complaint, the firm should consider those matters as if they were part of the complaint (DISP App 3.2.5G).
The firm should also take into account any information it already holds about the sale and other issues that may be relevant, including issues identified by any root clause analysis (DISP 3.2.6G).
In the case of PPI sold in connection with refinanced loans, the firm should consider all its PPI sales to the complainant that were rolled up into the loan covered by the PPI contract in question, and the cumulative financial impact of any breaches or failings in those earlier sales (DISP App 3.2.7G).
Considering evidence

The emphasis here is on discouraging firms from relying solely on narrow, technical defences, such as the detailed wording of the policy or the fact that the consumer signed the relevant documentation or failed to exercise a right to cancel.
Taking into account some of the responses received to the first consultation, however, the finalised guidance highlights the need for balance.

Firms are encouraged to give "appropriate weight and balanced consideration" to the complainant's evidence, bearing in mind what the complainant says and any other information the firm identifies. But the guidance adds: "The firm is not expected automatically to assume that there has been a breach or a failing" (DISP App 3.3.1G).

Firms should, however, recognise that oral evidence may be sufficient and should not dismiss the complainant's evidence solely because it is not supported by documents. The firm should also take into account the complainant's limited ability to articulate his complaint or explain his actions or decisions (DISP App 3.3.3G).
Where evidence conflicts, the reliability of the complainant's account should be assessed "fairly and in good faith" and the firm should make all reasonable efforts to clarify ambiguities or conflicts before making a final decision (DISP App 3.3.4G).
In particular, the firm should give "more weight" to any specific evidence about what happened during the sale than to general evidence about selling practices at the time, "unless there are reasons not to because of the quality and plausibility of the respective evidence," (DISP App 3.3.9G). This last proviso has been added in response to criticisms that the guidance was too one-sided.

Just because a firm was not authorised to give advice or did not intend to make a recommendation, it should not assume that it did not in fact do so, implicitly or explicitly, on a particular sale (DISP App 3.3.10G).

Firms should also be asking themselves whether the information was provided to the customer in a way that was clear, fair and not misleading and with due regard to the customer's information needs (DISP App 3.3.11G)

This consideration should include whether the documentation "from a reasonable customer's perspective" was sufficiently clear, precise and presented fairly. Were the complainant's individual circumstances at the time of the sale taken into account? When oral disclosures were made, was the information read out too quickly to be properly understood? (DISP App 3.3.12G).

Two provisions make it clear that (1) a firm should not consider that a successful claim on a PPI policy is in itself sufficient evidence that the complainant had a need for the policy or would have bought it regardless (DISP App 3.3.7G) and (2) that a complaint should not be rejected solely because the complainant had held a PPI policy before (DISP App 3.3.13G).
Root cause analysis

Under DISP 1.3.3R, firms are already required to take reasonable steps to identify and remedy recurring or systemic problems when handling complaints. These include analysing root causes, considering whether they affect any other processes or products and correcting the problem where it is reasonable to do so.
Existing DISP guidance encourages firms to consider acting on their own initiative with regard to customers who have been disadvantaged or potentially disadvantaged by the firm's failings but who have not made a complaint (DISP 1.3.5G).

Having referred to these existing obligations, the new PPI guidance adds that, where the firm receives complaints about PPI sales, it should carry out a root cause analysis and, where this suggests recurring or systemic problems, consider whether these were likely to have contributed to a breach or failing in an individual case (DISP App 3.4.1G).

This provision has been criticised as seeking an industry-wide sales review "through the back door".
Under section 404 of FSMA, the FSA can ask the Treasury to authorise a past business review that would require all firms to take action in regards to all sales within the scope of the review, whether or not the customer has made a complaint.

The FSA, however, has decided such a step would be disproportionate. Instead, under DISP 3.4.3G, a firm only has to consider taking steps towards non-complainants if its own root cause analysis identifies recurring or systemic problems in its sales practices, either for sales in general, or for those from a particular location or sales channel.

In such cases, the guidance says the firm should consider whether it ought to act with regard to customers who may have suffered detriment but who have not complained and, if so, take "appropriate and proportionate" measures to ensure they are given appropriate redress.

This might include setting up a redress or remediation exercise, but the policy paper acknowledges that fair and appropriate measures are likely to differ from firm to firm and across different products and sales channels.

So, in cases where a significant proportion of sales are likely to have been affected, it might be appropriate for the firm to contact all its customers to give them the chance to have their sale reviewed. But if the impact is more limited, it might be enough for the firm to make sure it takes account of the problem in its complaints handling. The firm might also consider putting something on its website explaining the problem and what it is doing about it.

If the firm does not have the relevant permissions to carry out some of these steps, the FSA expects it either to come to some arrangement with other related parties who do, or to consider other approaches.

In any event, the policy paper reiterates that firms have a duty to act on their own initiative when their root cause analysis reveals recurring or systemic sales failures:

"Firms should be under no illusion about the importance we place on their obligations in this regard, and their ability to demonstrate and justify to us the relevant actions they have taken, and in particular, not taken. Where they cannot do this, they can expect tough action from us."
Reassessing rejected claims

Where a complaint is made about the sale of a policy, the firm should determine whether any claim on that policy has been rejected and, if so, whether the complainant "may have reasonably expected that the claim would have been paid" (DISP App 3.5.1E).

A guidance note gives an example of this reasonable expectation: where the firm failed to disclose appropriately an exclusion or limitation later relied on by the insurer to reject the claim and it should have been clear to the firm that the exclusion or limitation was relevant to the complainant (DISP App 3.5.2G).
If the firm concludes the complainant may have reasonably expected the claim to be paid, and if the claim is worth more than the redress that would be due for any sales failing, the firm should pay the complainant the value of the claim plus interest as appropriate. If the claim is worth less than the redress, the firm should pay the redress. (DISP App 3.7.6E).

The final text also makes it clear that the firm may consider alternative forms of redress where this is fair and appropriate (DISP App 3.8.2E). In the example of an undisclosed exclusion or limitation (and provided there were no other significant sales failings), this might mean paying the claim as if the exclusion or limitation did not apply.

The FSA dismisses concerns that an intermediary handling a sales-related complaint might have problems finding out why the insurer turned down an earlier claim. Where a reasonable expectation is created, the regulator believes it should not be unduly difficult for the intermediary to obtain relevant information and views from the insurer.
The effect of a breach or failing

Once a firm decides there has been a breach or failing, it should consider whether the complainant would have bought the PPI policy had no mis-selling occurred (DISP App 3.6.1E). If the answer is yes, then no redress will be payable (DISP App 3.7.1E).

In the absence of evidence to the contrary, however, the firm should presume the complainant would not have bought the policy if the sale was "substantially flawed".

Twelve examples are given of substantial flaws, including where the firm pressured the complainant into the purchase or did not disclose that the policy was optional. Many of the other examples mirror ICOBS requirements for suitability, eligibility and product and price disclosure (DISP App 3.6.2E).
Redress

If the firm decides the complainant would not have bought the policy, it should aim to put him in the position he would have been in had no sale occurred.
In such cases, the firm should pay a sum equivalent to a full refund of premium plus interest (DISP App 3.7.3E). Any rebate due, for instance because the customer cancelled a single premium policy, may be deducted. Similarly, if the firm has already paid a claim under the policy, this amount may also be deducted from the redress (DISP App 3.7.5E).

In addition, in the case of single premium policies where the premium was added to the loan, the firm should, where possible, arrange to have the loan restructured to remove the premium element. If the firm cannot arrange this, it should pay an amount based on the difference between the actual loan balance (or the balance on cancellation) and what it would have been if the PPI had not been added (DISP App 3.7.4E).
The alternative approach

In the case of single premium PPI policies, the firm may choose to adopt a different approach, based on the presumption that the complainant would have bought a regular premium policy instead.

This alternative (or comparative) approach, however, only applies to specific sales failings:
(1) where the firm recommended a single premium policy which did not provide a pro rata premium refund, without ascertaining whether the complainant was likely to repay or refinance the loan early, or
(2) where the firm failed to disclose characteristics specific to the single premium policy, such as the premium being added to the loan and interest being payable on both or that the term of the cover was shorter than the term of the loan (DISP App 3.7.7E).

If the firm decides to follow the comparative model, it must not pick and choose complainants but should apply the same approach fairly for all relevant complainants in a relevant insurance book (DISP App 3.7.8E).

Broadly, the firm should pay the equivalent of the amount paid in single premium, less what the customer would have paid in regular monthly premiums (DISP App 3.7.10E). To help firms calculate the cost of an alternative policy, the FSA has provided a set comparison price of £9 per £100 of benefit payable.

Where the single premium was added to the loan, the firm should, where possible, arrange to have the loan restructured to remove the premium element. If the firm cannot arrange this, it should pay an amount based on the difference between the actual loan balance (or the balance on cancellation) and what it would have been if the PPI had not been added (DISP App 3.7.4E).

If the complainant expressly asks for the PPI cover to continue on a regular premium basis until the end of the existing policy term, future premiums should be based on the alternative regular premium price (DISP App 3.7.14E). The guidance sets out different ways in which future premiums might be collected.
Other appropriate redress

The final text makes it clear that the remedies set out are not exhaustive (DISP App 3.8.1E). But if a firm applies a different remedy, it should satisfy itself that the remedy is appropriate and fair (DISP App 3.8.2E).

The policy paper gives as an example a situation where the firm failed to disclose an exclusion or limitation. The firm might decide that, if the consumer makes a claim under the policy, that claim will be dealt with as if the exclusion or limitation did not apply. But, the paper adds, this would only be fair and appropriate if there were no other sales failings that were particularly significant to that consumer.

"Consequently, we anticipate that such different approaches are unlikely to be appropriate in the majority of cases and will be the 'exception not the rule' for firms when dealing with a complaint satisfactorily".

In assessing redress, the firm should also take into account other, consequential losses, although the guidance makes it clear that these must be a reasonably foreseeable result of the firm's breach or failing (DISP App 3.9.2G).
Intermediaries

Respondents to both consultations argued that the redress provisions would fall disproportionately on broker firms and that they failed to recognise the role of insurers and lenders in the manufacture, design, promotion and sale of PPI.
The FSA's view, however, is that, since such firms were primarily responsible for the sale of PPI, is right that they should bear the brunt of redress claims.
"Concerning provider/distributor responsibilities, where a firm is an authorised general insurance intermediary, it is not bound, unless by contractual terms, to offer a particular PPI policy provided by a lender," the policy paper comments. "Indeed, in some cases doing so may not be treating customers fairly."
"Distributors are responsible for maintaining a compliant sales process, and therefore should be responsible for redress, where a failing arose from the manner in which the product was sold. If brokers feel that undue pressure was placed upon them by lenders or insurers, they may separately have recourse to the court if they so choose."

The question whether a broker was acting as the agent of another party and whether that party should therefore be responsible for its actions will depend on the contractual relationship between them and the factual circumstances of each sale. In such cases, the broker may have a claim against another party, but that does not alter its primary liability to the customer under DISP.

Some respondents suggested that intermediaries should be able to use the complaint forwarding rules to pass on complaints to the provider and/or other relevant parties.

Under DISP 1.7.1 R, a firm may forward a complaint where it has reasonable grounds to be satisfied that the other party is solely or jointly responsible. But the FSA thinks it unlikely this rule will apply in many cases. If the complaint concerns a sales failing, the appropriate recipient is the firm that sold the PPI.

Overall, the FSA predicts that the total redress and administrative costs for general insurance intermediaries will be about £470 million. In March, it estimated that between 5% and 10% of firms (about 100 in number) would fail as a result. It has now revised that figure to about 35 firms.

This, the paper states, is "an unavoidable consequence of these firms' own mis selling of PPI (and frequent undue dependence upon it in their business model) and not a reason to remove them from the scope of our provisions."
Next steps

The new DISP provisions come into effect on 1st December 2010, although the FSA is not expecting firms to begin any "own initiative" actions towards non-complainant customers until mid-February 2011.

The regulator will monitor how firms implement the changes in stages. Towards the end of this year, it will ask selected firms for a detailed report on what steps they are taking to prepare for implementation and, in early 2011, on what root cause analysis they have undertaken.

This will be followed during 2011 by detailed and intensive reviews of firm's complaints handling and their approach to root cause analysis.

Meanwhile, the Competition Commission has provisionally decided to go ahead with its ban on firms selling PPI at the same time as a loan or credit. This will apply to all forms of PPI except retail PPI, which provides cover for repayments on goods bought via catalogues. The Commission is due to publish its final decision in late September/early October.

[di30]

Cont...Banks aim to block Insurance Refunds

Media news 13 October 2010.....

http://www.express.co.uk/posts/view/...urance-refunds

BANKS AIM TO BLOCK INSURANCE REFUNDS

Wednesday October 13,2010

By Esther Shaw


Have your say(0)

CONSUMERS who believe they have been mis-sold loan insurance by their banks are being urged to act fast to claim compensation.

The call comes from campaigners after news that the banks are to challenge forthcoming rules on controversial payment protection insurance (PPI) policies.


The British Bankers’ Association (BBA) has filed papers with the High Court asking for a judicial review of some decisions made by City watchdog, the Financial Services Authority (FSA).


Lloyds Banking Group, which includes Lloyds TSB, Bank of Scotland and Halifax, said it was putting any complaints currently in the pipeline on hold while it sought clarification from the FSA over how to deal with them.

There are fears other banks could follow suit, leaving thousands of mis-selling victims in limbo. PPI is designed to pay out if customers can’t meet credit card, loan or other repayments, perhaps due to illness or redundancy. Campaigners say the cover is overpriced and widely mis-sold.

For example, many borrowers have been wrongly told the cover was a precondition for having their loans approved. In August, the FSA published new measures aimed at fairer treatment of customers buying PPI and better handling of complaints.

The FSA announced the crackdown, which included guidance on paying redress and when firms should review past mis-selling complaints, following rejection by the banks of tens of thousands of complaints about the policies.

The watchdog gave firms until December 1 to adopt the new rules. However, the BBA has now decided to launch a legal challenge against the measures.
The BBA is contesting the FSA’s measures on the basis that this could open the door for retrospective regulation and could set a precedent which might then be applied to other products.


The industry fears the regulator could force banks to pay redress for past sales practices which were not specifically outlawed at the time.

“It has unfortunately been necessary to do this because there is insufficient legal clarity about what the FSA and Financial Ombudsman Service (FOS) is proposing in this area,” said a BBA spokesman.

The FSA has said it will contest the BBA’s judicial review and that it expects banks to continue handling PPI complaints while the process is still ongoing.
Campaigners are urging consumers who have considered complaining to act quickly. At present, the FSA is allowing them to continue seeking refunds, and the FOS is still hearing cases.

“If you’ve put in a complaint and had an offer made, you should be safe,” said Lucy Widenka, personal finance campaigner for Which?. “We urge anyone affected to take action as soon as possible.”
The concern is that if the courts were to rule in favour of the BBA and the banks, securing compensation could become difficult once again.
The FSA said it expected firms to continue to handle complaints, but Lloyds is suspending its current cases.

A spokeswoman for Lloyds said: “We will stand by any settlements that have already been made. The court case will not affect those offers. However, we are putting PPI sales-related claims on hold while we talk to the FSA. We hope this will only be for a few weeks.”
It added that customers can still lodge complaints in the normal way.

FURY AT 'RIDICULOUS WAR ON CONSUMERS'
According to recent Financial Services Authority figures, in the last five years there have been more than a million complaints made to firms about payment protection insurance.


Figures also show that in 2009-10 customers referred 49,196 complaints to the Ombudsman which then upheld nine out of 10 in the complainants’ favour.
“It makes you wonder what planet the banks are living on,” said Which? chief executive Peter Vicary-Smith. “Not content with the billions they have made from this over-priced, flawed and frequently mis-sold product, the banks now seem to be trying to wriggle out of implementing changes that would ensure consumers are treated fairly.

“The British Bankers’ Association’s taxpayer-backed members should take a long, hard look at themselves and ask why they continue to wage this ridiculous war on consumers.”
Which? has set up a free online complaints service for consumers to make their complaint: Make a PPI claim online - Claim your PPI money back - Payment Protection Insurance campaign - Personal finance - Which? Campaigns.

[debtisbad]

Re: PPI rules open door to retrospective regulation, says BBA

The BBA think that it is OK for banks to mis sell inappropriate products and rip off their customers. Then to stop anyone from complaining. Therefore the BBA cannot be trusted one inch.

[pompeyfaith]

Re: PPI rules open door to retrospective regulation, says BBA

absolutly nothing we can do about them though as they work for the banks interests not the consumers

[Tools]

Re: PPI rules open door to retrospective regulation, says BBA

I completely agree with you that they ultimately look out for their members interests, we do too. :tinysmile_grin_t:

However, I must say that they, or at least Brian Mairs, has been very helpful, accommodating and proactive with us whenever we have asked for information/assistance.

We will continue to try build relations with the BBA, FSA and other bodies as this is more constructive than working against them.