MPPI concerns come under FSA scrutiny

The Financial Services Authority (FSA) has launched an investigation into sales of mortgage payment protection insurance (MPPI) after it admitted that the product may pose a higher risk to consumers.

In a document recently published by the FSA, in which it outlined its approach to retail risks, the regulator revealed that it believes payment protection insurance (PPI) represents one of the risks in the market. This includes MPPI where the product is linked to a mortgage.

FSA spokesperson, Robin Gordon-Walker, said that the sale of PPI has appeared on the consumer agenda after several key organisations have voiced concern over the matter. "The Financial Ombudsman Service, consumer bodies and the media have all expressed concerns in this area about aggressive sales practices, poor value products, excessive profit margins, unsuitable products, small print and complex terms," he said.

As part of its investigation, the FSA will review selling practices and examine the product disclosure provided to customers. Mystery shopping will also be undertaken. The results are expected to be published in October 2005.

"We will be looking at payment protection insurance across the market and will take action where necessary," Gordon-Walker added. Moreover, the FSA will also look at the ways in which financial products are promoted, and will begin the investigation by focusing on products that may pose a high risk to consumers.

Linda Tyson, policy adviser at LifeSearch, is pleased the FSA has recognised the potential consumer risk involved in both financial promotions and PPI.

"We have been very vocal regarding our concerns on both issues and we hope the FSA will act soon to ensure consumers are being treated fairly in these areas," she said.

Financial Ombudsman Service spokesperson, Emma Parker, also said it is good the regulator is taking a closer look at these issues, but doubted whether this will have an immediate impact on claims.

"I think it would be too early on in the Financial Services Authority's work to expect a decrease in the number of complaints on payment protection insurance. In any case, there is a time lag between when a product is sold and the compliance we see - often with longer term insurance this can be a number of years," Parker said.

The FOS received 802 cases concerning PPI in the financial year ending 31 March 2004.