FSA: Egg plc's P.P.I. (Payment Protection Insurance) Failings

A wee while ago the UK Financial Ombudsman raised an issue with the F.S.A. around the sale of P.P.I. (payment protection insurance) by mainstream lenders.

The issue was simply that the P.P.I. was being mis-sold by lenders, and that consumers were either a) being unfairly coerced in buying it and b) were not being given enough information about what it was and the limitations their P.P.I. policy would have.

P.P.I. was often sold, not as an add-on to the product the customer was applying, but almost as a prerequisite to it, and depending on the policy, P.P.I. can be quite expensive.

When the F.S.A. got involved initially, one of there first suggestions was they may impose a requirement for lenders to provide a simple table of benefits of P.P.I., they felt this would make it very easy for consumers to decide if they wanted the product, and it would also highlight the product as an add-on.

However, a few years ago, the F.S.A. implemented a similar "summery box" for lenders, which consumer feedback has shown, really doesn't give much further insight into the intricacies of the lending product they might be interested in.

Following some time of evaluation, the usual threat of name, shame and fine. Today we hear that they have indeed moved on this threat and picked a big F.S. name to do so.


Egg plc (owned by Citibank) have been fined a substantial £721,000 for "breaches of Principles 3 and 6 of the F.S.A.’s Principles for Businesses". You can read the full F.S.A. Final Notice to Egg here.

Principle 3 = "A firm must organise and control its affairs effectively."
Principle 6 = "A firm must pay due regard to the interests of its customers and treat them fairly."

In Egg's case these are two hefty charges. Of course these are the headline principles. The detail is in the F.S.A. Principles of Business if you're interested in reading it.

In short, the press release breaks it down nicely:

"Egg sold P.P.I. either when receiving a customer services call, or when making a sales call to a new customer. When Egg customers said they did not want P.P.I. on their credit cards, the firm directed its sales staff to use techniques to persuade the customer to take the insurance - called 'objection handling'.

These techniques included over-emphasising the positive features of the P.P.I., or telling the customer they could take the P.P.I. for a free period and cancel it later if they did not want it. In some cases, even when the customer did not consent, P.P.I. was applied to their credit card anyway.

In addition, in a significant number of cases Egg failed to obtain clear consent from customers to receive only limited information about the P.P.I. during the telephone sale."

I was happy to hear that P.P.I. was being investigated, its been a cash-cow for lenders for far too long, at the consumers expense. As a product, there is a place for it in today's marketplace, there's no doubt about that however the way it was sold and marketed was, in most cases, simply unfair.

I've heard on the grape vine that there is potential for the next F.S.A. move would be to instruct lenders to extract P.P.I. as an option from within application form, where it is found almost 100% of the time, and start selling it as a simple stand a lone product.

Not only with this make it easier for consumers to see that its an add-on product, it will also level the playing field some-what. There's actually a lot of small insurance firms out there that sell P.P.I. at hugely competitive rates and with better terms.

F.S.A. well done.

(F.S.A. Egg plc PR is here)