FSA and OFT publish draft guidance on payment protection products
The number of consumers using packaged bank accounts (i.e. a current account bundled with a range of insurance policies and other non-financial products and services, for which customers often pay a monthly fee) has increased significantly over the last few years. As banks have been hit with PPI (payment protection insurance) mis-selling claims, many have turned to packaged bank accounts instead. However, the policies bundled into packaged bank accounts have been criticised as difficult to understand, expensive and sometimes useless for the customer.
Through the new proposed rules, FSA seeks to ensure that consumers are able to make an informed decision about the insurance policies sold as part of a packaged bank account, and are not sold polices which they do not understand or need. FSA also wishes to limit the potential risk that consumers rely on one or more of the policies, only to learn later that they are unexpectedly unable to claim because they are ineligible, or the policy was not suitable for their needs.
FSA proposes the following key rules for firms selling insurance policies as part of a packaged bank account:
- Firms must take reasonable steps to establish whether a customer is eligible to claim the benefits under each policy. This includes checking whether the customer meets the qualifying criteria to claim each of the benefits under each policy. Firms must also inform customers if they would be ineligible to claim, and must keep a record of the eligibility assessment for each sale for at least three years;
- Throughout the term of each policy, firms must provide customers with an annual eligibility statement. This statement must set out any qualifying requirements to claim the benefits under the policy and recommend that customers review their circumstances and whether they meet the eligibility requirements; and
- When selling on an advised basis, firms must take certain steps to establish the suitability of an insurance policy. Firms must establish the customer’s demands and needs; take reasonable steps to establish whether each policy is suitable for these demands and needs; inform the customer if any of these are not met; and explain their reasons for any recommendation given. Firms must also keep a record of the suitability assessment and advice given for each sale for at least three years.
The new rules are found in an FSA consultation paper published in October 2011, which is available here. Responses to the consultation paper are invited by Friday 27 January 2012. FSA expects to issue a Policy Statement with final rules on eligibility and suitability and proposals in relation to price transparency in July 2012.
FSA states in the consultation paper that it also wishes to improve price transparency for packaged bank accounts; i.e. make it easier for customers to compare and contrast the rates at which insurance policies are offered in packaged bank accounts. Suggestions are invited for means of achieving this in a way that helps consumers to shop around.
