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Financial Services Law Insights and Observations

U.K. FSA Fines Banks for Slow Response to Payment Protection Insurance Customer Complaints

UK FSA Ancillary Products

Federal Issues

On February 19, the U.K.’s Financial Services Authority announced a fine against three related banks for failing to promptly redress customers lodging complaints about the banks’ payment protection insurance (PPI) product. The FSA states that over a 10 month period, the bank failed to pay redress within the FSA-required 28-day period for nearly a quarter of the banks’ customers who submitted complaints regarding PPI, with some customers waiting over six months for payment. The FSA states that its investigation revealed (i) the banks failed to establish an adequate process for preparing redress payments to send to PPI complainants; (ii) bank staff engaged on the redress process did not have the collective knowledge and experience to ensure that the process worked properly; (iii) the banks failed to effectively track PPI redress payments; (iv) the banks failed to monitor effectively whether they were making all payments of PPI redress promptly and did not gather sufficient management information to identify, in a timely manner, the full nature and extent of the payments failings; and (v) the banks’ approach to risk management when preparing redress payments to send to PPI complainants was ineffective. The FSA has been active in addressing PPI issues. Last month, the FSA and the Office of Fair Trading jointly published final guidance to help prevent the problems associated with PPI recurring in a new generation of products. The FSA’s guidance for payment protection products within its jurisdiction stresses that firms should ensure that product features reflect the needs of the consumers they are targeting. It describes the importance of (i) identifying the target market for protection products; (ii) ensuring that the cover offered meets the needs of that target market; and (iii) avoiding the creation of barriers to comparing, exiting or switching cover.