Businesses selling payment protection insurance (PPI) alongside credit, such as loans and motor or consumer goods finance, face tough action from the Financial Services Authority (FSA).

Businesses selling payment protection insurance (PPI) alongside credit, such as loans and motor or consumer goods finance, face tough action from the Financial Services Authority (FSA). The regulator, which has been focussing on mis-selling over the past three years, is to step up its regulatory intervention following considerable numbers of consumer complaints to the Financial Ombudsman Service. It has already taken action against 18 companies for poor selling practices, with the latest high-profile offender, Alliance & Leicester, being fined £7m for “serious failings” when selling PPI.

Companies that do not want to fall foul of the FSA should ensure that customers are given full details of policies sold, including limitations and exclusions which may affect a customer’s eligibility to a PPI policy. Customers must be told that the cover is optional and must not be pressurised into taking it. They should also fully understand the cost of the product, whether the premium is paid in monthly instalments or whether the full cost is added to the loan and interest is paid upon it. This ‘single premium’ insurance has caused many problems and the FSA wants companies to re-evaluate whether they ought to continue to sell it.

The FSA has a range of powers to deal with PPI; including public censures, imposing financial penalties and taking action against companies and individual executives. It can also stop firms selling PPI altogether.