The Financial Services Authority (FSA) has revised plans to introduce “tough” reforms to the payment protection insurance (PPI) market after receiving “highly critical” feedback from the industry.
In September last year, the FSA announced measures to force businesses to re-open up to 185,000 previously rejected PPI complaints and reassess them against tougher new guidance.
The FSA said reforms were needed to ensure PPI complaints, which had reached record levels, were handled properly and redressed fairly.
But today the FSA said that after detailed feedback from industry it had made “some revisions” to its original proposals.
“Some industry responses queried the lawfulness of our proposals, including whether we had the power to make the rejected complaint rule,” said the FSA in its consultation document.
“We will now wait until after our powers have been clarified under the new Financial Services Bill currently before parliament before deciding how to proceed concerning this element.”
Among other revisions, the FSA proposed to reduce the amount of redress that businesses would have to pay to consumers mis-sold the policies.
Industry concerns submitted to the FSA included that the regulator had not demonstrated there was a “genuine problem” around PPI sales or around PPI complaint handling.
The FSA was accused of also underestimating the cost of the redress package to the industry and overestimating the benefits.
In September it estimated the cost of its new guidance would be £700m over five years, but its document released today showed a revised figure of £1.2bn.
The FSA had originally planned for its intervention measures to be in force by the end of last year, much faster than other measures it had proposed, to reflect its concerns that too many PPI complaints were being rejected.
But the FSA now plans to conduct a further six weeks consultation on its revised proposals.
“This consultation exercise will allow us, among other things, to further test and debate our revised assessment of the whole package’s costs and benefits and wider industry impact,” said the FSA.
PPI is designed to cover loan repayments for credit card and other unsecured debts in the event of accident, sickness or unemployment of the borrower.
However, a record 31,000 complaints about PPI were lodged with the Financial Ombudsman Service in the year to the end of March 2009, with the uphold rate in the consumers’ favour of between 80-90 per cent, considered too high by the Ombudsman.
Consumer groups claimed today that the FSA had bowed to pressure from industry.
“The industry seems determined to fight against the FSA introducing new rules and guidance which would ensure consumers receive a fairer outcome if they make a complaint,” said Adam Phillips, chairman of the Financial Services Consumer Panel.
“However, this is no reason for the FSA to back off, and we are pleased that the tone of the announcement today indicates the FSA is not planning to do so. Consumers need tough action from the FSA.”
Meanwhile some sectors of the PPI industry welcomed the extended consultation.
“The FSA recognise that they significantly underestimated the potential impact of their original proposals,” said Fiona Hoyle, Head of Consumer Finance at the Finance & Leasing Association.
“We will look carefully at what they now propose, and at their more detailed costings. The aim should be to ensure that inappropriate retrospective regulation, and unintended adverse consequences for consumer credit customers, are both avoided.”
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