Published on : Sun, 25 Sep 2005 08:04GMT
by : Richard Byers

LONDON - The Financial Services Authority has said yesterday that it would be forced to move against the insurance industry if it found that there was no improvement in misselling payment protection insurance (PPI).

Clive Briault, the FSA’s managing director for retail markets was scathing in his criticism and said that unless banks, credit card companies and insurance brokers took steps towards improving PPI, it would be forced to frame new rules to regulate what has been termed as “a £5 billion protection racket”. The terms of loans on the PPI are not properly explained to consumers and they face a lot of heartburn at a later stage when the fine print comes into the picture, said the FSA.

The overall margins are in fact pretty wide as PPI could add up to £1,000 to the cost of a £5,000 personal loan. “We are determined to improve standards in this market and intend to publish in November examples of good and bad practice so that firms know what we expect from them,” Briault said adding that sellers could be compelled to be more transparent on pricing, on policy exclusions and on alternative sources of PPI.

The Competition Commission had announced some measures regarding the sale of PPI on store cards last week and Mr. Briault made it clear that the FSA would not hesitate on including the same for general purpose PPI as well. The FSA has said time and again that it would prefer for the industry to find its own remedies rather than having to step in. If the situation does not improve, then FSA would have to look for solutions, Mr. Briault said. “If the review leads us to conclude that changes to our rules and guidance are necessary, we will, of course, consult on these in the usual way,” he concluded.