Despite being hammered to the tune of £7m for serious failings in its telephone sales of payment protection insurance (PPI), Alliance & Leicester is still way ahead on the business in question.
Braintree, Essex (
Fined by the Financial Services Authority (FSA) for forcing through non-compliant and unsustainable sales over a three year period between January 2005 and December 2007, A&L's activities were held to account in regard to the 21,000 policies that were sold in that time.
However, despite the record fine handed down, Sara-Ann Burgess, director at PPI specialist Burgesses, said A&L would still end up making a significant profit out of the business that had been condemned as non-compliant.
"The regulator has said A&L sold approximately 211 000 policies during the period for which its activities have been fined, at an average price of £1265. In round figures, that equates to £265m in premiums. The £7m fine may be a record, but this sorry affair shows just how much some of the high street banks have made out of PPI," said Burgess.
The Office of Fair Trading said that the average claims ratio in the personal loans PPI market was 18%. If this is representative of A&L's business then Burgess said the bank would have received £265m in premiums, paid out £48m in claims, paid out £7m to the FSA and be left with £210m to pay for its overheads on the business and carry out the remedial work that the regulator has demanded.
"There is no doubt that this is a very substantial fine," said Burgess. "However people should not be in any doubt of the huge profits that high street providers have been squeezing out of their customers and the non-compliant way in which they have done it."
Burgess said she hoped the news did not stop consumers taking out
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The news that the regulator is set to crackdown on the payment protection insurance (PPI) market is good news for the sector, for the wider financial services industry and most of all, the consumer.
Braintree, Essex (
So says Sara-Ann Burgess, managing director of
"Worldwide crisis in the credit markets and its knock on effect for banking and other financial services has brought it home to many people just how many people in the financial services industry have been treating their customers with contempt.
"Nowhere is this better exemplified that in the PPI market where poor performing products that generate massive commission fees have been pushed to unsuspecting customers."
Investigations into the PPI market have been ongoing for some time. However, the FSA declared this week it is to escalate intervention following poor findings from its thematic review. It highlighted the sale of single premium PPI sold alongside unsecured personal loans as being of particular concern and advised stopping the practice all together.
"We have been arguing for some time that this product is unsuitable in nearly every scenario and should be scrapped. It is unsurprising that the FSA has now come round to our way of thinking, it is just disappointing that it has taken so long and left customers open to further exploitation by unscrupulous lenders," Burgess added.
The regulator is also to consider what action to take to deal with ongoing non-compliant sales practices and consider actions to identify and remedy non-compliant past sales, using a range of regulatory powers at its disposal.
Burgess said: "While stricter requirements in selling payment protection insurance would focus attention on the responsibilities that brokers hold to their clients, they must be introduced alongside a tighter line from the FSA over the frightening divergence in price that exists between the cheapest and most expensive products in the market.
"The FSA could regulate the products sold, take a much harder line on those found wanting, or stop credit providers selling only their own protection insurance. This would introduce greater competition and ensure a better deal for the customer."