185,000 previously rejected complaints against mis-sold payment protection insurance (PPI) are to be re-opened under new guidance from the City Watchdog.

The FSA will ask sellers of PPI to write to all holders of policies bought since 2007 in order to give them a chance to complain and potentially have their money refunded.

The reason behind this is to try and alleviate some of the pressure the Financial Ombudsman Service has faced recently with the unprecedented level of complaints they have received from the public after loan firms have rejected their complaints.

Firms representing more than 40% of face-to-face sales in the Single Premium Unsecured Personal Loan PPI market have agreed to review these sales and redress those consumers identified as mis-sold.

Single premium PPI has been the most notorious sort of PPI and the sale of it was banned earlier this year.

The FSA has currently taken action against 22 firms over poor PPI sales practices with Alliance & Leicester receiving the largest fine of £7m in October 2008 for serious failings in its telephone PPI sales.

Alistair Darling has proposed tougher new reforms to the financial system specifically targeting UK banks. Stricter regulations will be introduced with a view to giving the customer much greater consumer protection.

In a statement to the House of Commons, Alistair Darling said the financial system needed to ensure robust regulation, and banks and financial institutions should be better managed.

Some of the key proposals included:

• More help for consumers – a national money advice line funded by the banks and a strengthened deposit protection scheme
• Greater competition – the FSA and Office of Fair Trading to ensure that new players can enter the banking market
• Tougher banking regulation – banks required to hold more capital to cover any future losses and more powers for regulators to take over failing banks
• Executive pay – the FSA to report yearly on whether banks have met the new code of conduct on remuneration, and bank boards to be strengthened

The consumers association Which? hailed measures to increase protection for bank customers.

"We’re pleased that the government recognises the need to provide a better deal for consumers," said Which? chief executive Peter Vicary-Smith.

"Warnings about risky products, universally available money guidance and more choice on the High Street will all help to empower consumers in their dealings with the financial world."

This news comes at a time where more and more consumers are becoming aware of the fact they may have been mis-sold a financial product.

Stricter controls over banks should mean an end to issues such as the mis-selling of PPI, consumer credit agreements, whole of life insurance and unfair bank charges etc. 

BBC Business News

Payment Protection insurance (PPI) is often mis-sold as a result of greedy financial services looking to make an easy and tidy profit. PPI is usually sold by financial institutions such as banks, money lenders, car finance companies, Credit Card companies and the like. PPI has been a profitable business for some time now and only in the last few years have the financial authorities really made any major changes to help protect the consumer.

PPI can cost the customer as much (or even more) as the interest paid back over the period of the loan or credit agreement, so it’s not hard to see why PPI is so often given the hard sell. The problem which comes with this method of selling is that the sale is often rushed through or little time for discussion is given to the full details of what PPI really covers or entails.

In most circumstances a customer never gets to find out if the policy sold to them was in fact suitable for their needs or mis-sold as they do not have the misfortune of finding themselves in a situation where a claim is needed to be made. A dreadful time to discover that a policy was mis-sold is when a customer finds they really need to make a claim, so often policies are taken out in order to protect against unemployment or other positions where financial difficulty may occur and finding out you’ve been paying into an expensive scheme which will not deliver because you do not meet certain criteria can be devastating.

Common sense would denote that certain questions should have been asked before a policy was undertaken or that a detailed copy of the terms and conditions be issued to the customer, but in so many situations this was found not to be the case at all.

Millions of people have purchased PPI under the mistaken belief that it was compulsory or that it would improve their chances of acquiring credit approval. This is just one of the reasons why massive fines have been imposed and changes in policy have been made over the last few years. Changes are still being made to the system and only today it was announced by The Financial Services Authority (FSA) that much larger fines will be imposed in the future if companies are still found to be mis-selling PPI. Individual traders can also be financially penalised under the new rules.

PPI is no longer allowed to be sold at the same time as the selling of loans or credit agreements, this indicates that the FSA recognised how severe the problem of mis-selling of PPI really was and under which conditions it was most commonly occurring.

The City watchdog have announced that firms which mis-sell financial products to consumers and individuals guilty of insider trading are to face a hard new crackdown which could lead to serious fines.

The Financial Services Authority (FSA) wants penalties to be linked to the companies income, with up to 20% of their income from the products or business areas related to the breach being susceptible to the fine.

Last October Alliance & Leicester was fined £10 million by the FSA for serious failings in telephone sales of payment protection insurance – although this was reduced to £7 million due to early co-operation from the firm.

However under the new regime Alliance & Leicester could of faced a maximum fine of £30 million

Individuals found guilty of insider trading will be fined a minimum of £100,000.

Enforcement director Margaret Cole said: "By hitting companies and individuals in the pocket where it hurts, the fines will be a stark warning to others on what they can expect to pay for flouting our rules."

The consultation on the penalties regime will close in October and the new policy is likely to apply to breaches committed after February 2010.

In the last financial year the FSA imposed a record £27.3m in fines, up from just £4.4m the year before.

So far a total of 20 firms have been fined £11.8m over payment protection insurance.

Source: BBC & Press Association

The Financial Ombudsman Service, which adjudicates on consumer complaints, says on average it processes complaints within six months. However this is not always the case, for Elizabeth and Keith Birbeck their  mortgage endowment mis-selling claim has taken almost 5 years for a conclusion to be reached.

Nationwide Building Society was forced to make a payment of £11,000 compensation for the mis-sale of their mortgage endowment policy in 1987.

The money will make-up for the £24,000 shortfall on the couple’s threebedroom semi-detached house, worth £180,000.

The Birbecks have been waiting since 2004 for their case to be concluded.

Elizabeth and Keith’s complaint hinged on the fact that their endowment term stretched well beyond Keith’s planned retirement date. Initially, Nationwide rejected their claim saying the advice was sound because the extended term of the policy kept costs down. Yet the Birbecks argued that at the time they could easily have afforded a shorter endowment term.

The Birbecks were originally offered £5,000 compensation but they appealed and the building society rejected the claim.

In July 2005 the complaint was passed to the FOS, who then took 8 months to review – and reject – the case.

The Birbecks appealed against the decision and by April 2007 a different FOS adjudicator decided that in fact the policy had been mis-sold into retirement and that additional compensation was due.

While this should of ended the matter Nationwide appealed. Their case was passed on to an ombudsman, the most senior adjudicator, for a final verdict.

Finally the ombudsman rejected the Nationwide appeal and the Birbecks were offered the original £5,000, but as the policy shortfall had widened this was increased to £11,000.

Emma Parker, FOS spokeswoman, agrees that the Birbecks experienced an unacceptable delay. She said ‘Endowment claims take on average between one year and 18 months to resolve, but in this case we let the couple down.’

Source: Daily Mail

In 2006 The Consumer Action Group received a detailed complaint accusing Black Horse Finance of mis-selling Payment Protection Insurance (PPI).

The main allegation regarding the mis-selling of PPI was that Black Horse offered the client two entirely separate interest rates at the point of sale for the same loan. If the loan was taken with PPI the interest rate available was significantly lower than the interest rate on the loan taken without PPI.

Additionally the PPI was not explained in any detail and resulted in the customer later discovering that they were ineligible to make a claim for periods of unemployment as the policy did not provide unemployment cover for self-employed customers.

The consumer was never made aware of this condition and had expected that one aspect of the vendor’s job would be to check if the policy they were selling was appropriate for their needs. The customer was not asked about their employment status but presumed that the fact that they were self-employed would have been evident from the loan approval process.

Independent research conducted by Capital Blue found that more than 30 % of borrowers felt they were pressurised into buying linked insurance products with their loan.

Source: Consumer Action Group