Action needed now to protect taxpayers from further mis-selling

13 May 2016

The Public Accounts Committee report warns there are substantial and continuing risks that financial services will be mis-sold—finding too little has been done to tackle the cultural problems behind mis-selling.

Report findings

The Committee's report urges the Financial Conduct Authority (FCA) and Treasury to "do more to know how much mis-selling is happening now, and which regulatory activities work best to prevent it".

It also expresses disappointment that claims management companies have made up to £5 billion from payment protection insurance (PPI) claims, describing this as "a failure of the system of regulation and redress".

More than 12 million consumers were mis-sold PPI and firms have paid over £22 billion in compensation to them since April 2011.

Claiming compensation is "straightforward and free" through Ombudsman

While it is "straightforward and free" for affected consumers to claim compensation through the Ombudsman, in 2014–15 80% of complaints to the Ombudsman about PPI were made through claims management companies.

The Report states: "In many cases, these companies merely package up payment protection insurance claims, but they typically charge between a quarter and a third of any compensation subsequently paid…the public bodies involved have been too slow in taking responsibility for this situation, and too passive in allowing it to happen."

The Committee concludes the cultures of firms and the nature of their sales incentives have been key factors behind mis-selling.

"The risks of mis-selling remain"

While the FCA has taken some action to deal with these, "the risks of mis-selling remain, for example pensions freedoms reforms are a potential trigger for future mass mis-selling".

The Report warns: "The FCA has withdrawn a planned review of banks' culture, but has not articulated what culture it expects firms to have. There is no guarantee that any improvements in cultures will stick as the regulatory spotlight moves away."

In its recommendations the Committee urges the FCA to "outline the actions it will take to improve cultures in financial services firms, and report to us on their effectiveness in a year's time".

Ombudsman should publish timetable for clearing PPI backlog

The FCA should also set out what more it will do to ensure firms check consumer understanding of the products they buy and of their rights to claim compensation.

'Real-time' indicators should be used to assess the extent of mis-selling and evaluate action intended to reduce it.

Many consumers are having to wait more than two years for a decision on compensation and the committee urges that by the end of July, the Ombudsman "should set out publicly a clear timetable for reducing and ultimately eliminating its backlog of PPI claims".

Chair's comments

Meg Hillier MP, Chair of the PAC, said:

"The widespread mis-selling of PPI is a vivid demonstration of the risks facing consumers in the financial services market.

The fall-out is still with us. Many people have waited years for a decision on compensation and, because of the way they have pursued their claims, even then they may not receive the full amount. Serious risks of further mis-selling remain.

It is vital the Government and regulators take fresh action now to better protect taxpayers’ interests, both in reducing the potential for mis-selling and, when it does occur, to ensure those affected get their due compensation.

We heard evidence of some diverse causes for products being mis-sold, ranging from incompetent or intimidating sales teams to badly designed and poorly targeted products.

It is deeply worrying that while the FCA has taken some action to deal with these causes, it has since scrapped plans for a review of banks’ culture—this despite it being best placed in the system to conduct such a review.

This sends a confused message to taxpayers and will do little to reassure potential customers. Our Report sets out practical measures to address this and ensure the interests of taxpayers are paramount now and in future."

Report summary

We are disappointed that claims management companies have made up to £5 billion from payment protection insurance claims, out of compensation that should have been paid to victims of mis-selling by financial services firms.

Departments and regulators have been far too passive in allowing this to happen.

Victims "have been waiting for years"

Many victims of payment protection insurance mis-selling have been waiting years for a decision from the Ombudsman and for the compensation they are entitled to.

The FCA has taken action to tackle some of the root causes of mis-selling of financial services, but there remain substantial risks of further mis-selling, as well as cultural problems within firms that make mis-selling more likely.

The FCA and the Treasury must do more to know how much mis-selling is happening now, and which regulatory activities work best to prevent it.

Further information

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