FSA investigation finds insurance broker Swinton guilty of serious failings over its sale of PPI

Insurance broker Swinton is to refund more than 350,000 customers who bought payment protection insurance (PPI) after the City watchdog found it guilty of serious failings in the way it sold the cover, it was announced today.

The firm, which has been fined £770,000, will contact the holders of more than 480,000 motor and home insurance policies bought between December 2006 and March 2008 to offer them a refund of the premium paid for the cover, which offers a payout if a policyholder is made redundant or is unable to work through sickness or accident.

The move follows an investigation by the Financial Services Authority (FSA) which found that Swinton was not checking whether customers had any real need for the cover before selling around £7.8m worth of single premium PPI policies.

In addition, the FSA said the broker had not made it clear that PPI was optional and did not properly disclose the cost at the point of sale.

The cost was bundled in with the initial insurance quote and Swinton failed to disclose that although customers were paying £15 or £20 for their policies, the cover only cost £1.21 with the remainder being taken by the broker as a fee.

The FSA said that even though more than 500,000 policies had been sold, only 266 claims were paid out. More than 40,000 customers who were sold policies were not even eligible to make a claim.

Deliberate breach of rules

Swinton stopped selling PPI in March last year following a request from the FSA when the failings came to light. It will now contact customers to offer them their money back. The FSA said that by agreeing to settle at an early stage Swinton had avoided a larger fine of £1.1m.

FSA director of retail enforcement and financial crime, Margaret Cole, said: “These were deliberate breaches. Swinton was fully aware it should establish a customer’s need for PPI before recommending it, yet nearly half a million policies were sold to customers who didn’t necessarily require them.

“Swinton’s PPI sales fell a long way short of our requirements and the firm clearly failed to treat its customers fairly.”

In a statement Swinton said it was taking the matter very seriously and had set up a dedicated unit to deal with the cases. It said it had written to 40,000 potentially affected customers in 2007 to offer refunds but very few had responded, suggesting they were happy with their decision to buy a policy.

It added: “The company did not deliberately set out to breach FSA rules or to disadvantage customers, and acted in good faith in the development of its sales process which it believed was reasonable and proportionate for the low cost of the product.

“The total cost of the product was disclosed to customers and was in-line with prices charged by other providers in the market for similar products. Swinton believes that the vast majority of its customers understood that the product was optional when offered to them, and in fact less than 50% of its eligible customers purchased the product.”

The consumer group Which? said Swinton had been let off lightly, and that the FSA should have taken action against the firm’s senior management. The group’s personal finance campaigner, Vera Cottrell, said: “This is a truly shocking case. As an insurance broker, Swinton is supposed to give tailored advice to its customers. Instead, it saddled thousands of people with unnecessary and unsuitable insurance.

“Customers should get an automatic refund. Too few people are likely to claim back £15 or £20, which would mean Swinton is getting let off lightly, especially given that the fine imposed by the FSA is just a tenth of the revenue it generated from PPI sales.

“What is more, we think the FSA should take action against the senior management responsible for this systematic breach of the rules.”

Earlier this year the FSA banned the sale of single premium PPI policies because of concerns it was overpriced and difficult for consumers to cancel. It had planned to ban the sale of regular premium PPI alongside other products from October next year, but this was stalled after Barclays bank took the case to court.

Financial Services Consumer Panel chairman calls on the FSA to impose personal fines on senior executives

Bank bosses should face personal fines if their companies are found to have mis-sold insurance policies, according to the head of one of the UK’s leading consumer-advocate bodies.

Adam Phillips, chairman of the Financial Services Consumer Panel (FSCP), said he wanted the most senior executives to be held to account by the Financial Services Authority.

He told the Observer: “I want to see more senior people, the heads of UK retail banking, sanctioned for mis-selling payment protection insurance [PPI]. At the moment the most senior person [to have been sanctioned] is the chief executive of Land of Leather.”

If his view prevails, then the chief executives of the retail divisions of major banks such as Lloyds Banking Group, Barclays and Royal Bank of Scotland could face fines if their companies are found to have mis-sold plans.

PPI is designed to cover loan repayments if a borrower falls ill or loses their job. Sales of the policies are believed to earn lenders around £4bn a year.

The Competition Commission had planned to ban the sale of such policies at the same time as a personal loan or credit card is taken out, making companies wait seven days before contacting customers to see if they wanted cover. The move, intended to make it easier for customers to shop around, was put on hold after it was challenged by Barclays.

Paul Briant, chief executive of Land of Leather, was fined £14,000 for failing to properly oversee the sale of PPI by his firm. The FSA found that the company had not ensured that all its sales force was fully trained to sell PPI over a six-month period in 2006 and that it had failed to make any effective check on its sales force until February 2007, exposing 58,000 customers to the risk of buying unsuitable plans. Land of Leather was also fined £210,000.

But when Alliance & Leicester was fined £7m for mis-selling PPI over the phone, none of the bank’s senior staff was penalised.

The Financial Ombudsman Service, which handles consumer complaints about numerous regulated products, has received fewer than 30 complaints of mis-selling from Land of Leather customers in the first six months of this year. In contrast, it has upheld nearly 3,500 complaints of PPI mis-selling against Lloyds during the same period, and another 2,000 against its subsidiaries Bank of Scotland and Black Horse Ltd, yet no individuals have been held responsible at these companies.

Other financial services companies that have had a high number of PPI mis-selling complaints upheld include Barclays, MBNA, the Royal Bank of Scotland and Welcome Financial Services.

Phillips said: “Banks are supposed to have systems to make sure they don’t have these failures. It’s clearly the case that there was a massive systems failure. Someone is responsible for making sure that doesn’t happen.”

A spokeswoman for the banking regulator, the Financial Services Authority, said it had taken the action it thought appropriate against firms where mis-selling had taken place. She said: “We’ve got complete commitment to taking action against individuals where there’s the evidence for us to take action.”

Phillips, who joined the FSCP in 2004 and took over as chairman in July, believes the next big mis-selling problems are likely to involve self-invested personal pensions and equity release products, which allow older people to realise cash from the value of their home.