Watchdog’s new joint guidance follows PPI scandal

FSA's Margaret Cole

The FSA and the Office of Fair Trading (OFT) have launched a bid to nip in the bud a repeat of the payment protection insurance scandal by issuing new joint guidance on such products.

The guidance is targeted for firms designing new products such as short-term income protection, or debt freeze or debt waiver as elements of a credit agreement or mortgage. Many firms are developing protection products following the widespread withdrawal of PPI.

The FSA’s guidance stresses that firms should ensure that product features reflect the needs of the consumers they are targeting.  There are four key areas of concern that it urges providers to think about carefully:

  • firms not properly identifying the target market for the protection product;
  • the protection not reflecting the needs of the intended consumers;
  • the benefit of a successful claim not matching the needs of the claimant; and
  • product features or pricing structures creating barriers to comparing products, exiting a policy or switching cover.

The OFT’s guidance sets out how the Consumer Credit Act (CCA) applies to payment protection products such as debt freeze or debt waivers linked to a regulated credit agreement, and how firms can ensure compliance with the CCA.

In particular, it says firms should ensure that consumers are absolutely clear about the nature, price and implications of payment protection products.

It says that if an agreement is offered with an option to choose debt waiver terms, upon payment of a fee, it may be necessary to provide financial information including and excluding the cost of the debt waiver.

The guidance also sets out examples of business practices in relation to payment protection products which the OFT is likely to regard as unfair or improper (whether unlawful or not) and so may cast doubt on fitness to hold a consumer credit licence.

FSA managing director Margaret Cole said the guidance was the first such to be issued on the design of a specific product.

She said: “Firms must learn the lessons of the past and make sure they have consumers’ needs at the heart of new product development. We want to put consumers ‘front of mind’ for the providers and distributors of these products.”

OFT director of consumer credit David Fisher said: “It is important that the problems encountered with mis-selling of PPI do not arise in relation to new payment protection products. Firms need to ensure that they comply with relevant legislation and do not engage in unfair or improper business practices. In particular, they should make clear to consumers what they are signing up to, and how much it costs, so that they can make properly informed decisions.”

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