The guidance outlines steps firms should take when writing to these customers. It stresses the importance of these communications explaining clearly why the customer may have been mis-sold and could be entitled to redress, what the customer should do to respond to the firm, the time limits involved and the need to act promptly.
The letters are part of a process being undertaken by PPI firms to establish what caused the large number of complaints; this is called ‘root cause analysis’. When an FSA authorised firm identifies recurring or systemic problems in its sales processes it is required to correct them.
The firm should consider what action it may need to take to treat fairly affected customers that have not complained – including contacting them and giving them the opportunity to claim redress.
The proposed guidance sets out the FSA’s expectations that the letters should be clear, fair and not misleading, and include a clear explanation of the following:
- that the letter contains important information and should be read carefully;
- that the customer may have been mis-sold;
- the specific failings that led the firm to believe the customer may have been mis-sold;
- that the customer may have suffered a financial loss and could be entitled to redress; and
- that the letter requires careful and immediate consideration and there is a time limit for making a complaint.
The FSA is also asking firms to ensure these letters are free from financial jargon or marketing material. The guidance consultation stresses the importance of keeping records of any response from the customer and the subsequent actions taken by the firm.
‘Time barring’
As well as providing guidance on the content of the customer contact letters, the FSA is also clarifying when and how firms might decide that a complaint is ‘time barred’.
Normally, customers have six years from a sale to complain or, if later, three years from when they became aware (or ought to have become aware) that they had cause for complaint. When a complaint is made outside this limit, the firm is no longer obliged to consider it and can reject it; the Financial Ombudsman Service may also dismiss a complaint made outside these time limits.
With firms beginning to send letters to customers, the FSA is acting now to ensure these letters are easy to understand, contain clear notice of a potential mis-sale, and the time limits involved.
Martin Wheatley, FSA managing director, commented:
“This is important guidance and marks a key moment in the story of PPI. So far the majority of payouts have been for complaints received before, or put on hold during, the judicial review. However, we are now beginning to see firms considering how to treat customers who were mis-sold but have not complained.
“We think that the redress due from this process may well exceed what has been paid so far, and that is why we are acting now to clarify our expectations. By ensuring that firms are clear about the problems they have identified and the potential redress due, we are aiming to prevent people running out of time if they choose to complain.
“Historically, response rates for these types of exercises are low - sometimes as low as one in ten. Therefore, if you receive a letter, it’s important to consider your PPI purchase carefully and if you feel you have been a victim of poor practice - please do respond to the firm.
"The British Bankers' Association and Association of Finance Brokers have both indicated their strong support for the guidance, and - along with consumer group, Which? - have also been in discussions with the FSA to try and reach agreement on how best firms can communicate with affected customers, both in the context of these contact exercises and PPI more generally. These are encouraging moves."
Which? executive director, Richard Lloyd, says:
“We’ve seen some really poor examples of communication from banks to their customers. There is no excuse for banks making the PPI mess even worse through unclear and confusing contact with customers entitled to compensation.
"Paying back mis-sold PPI promptly must be a priority for lenders that made billions from this deeply flawed product. It's essential that the regulator's new guidelines require all financial providers to be clear with people about their rights to a claim, the process and the timeframes for lodging a complaint.
"The message from Which? to anyone who thinks they might have been mis-sold PPI is simple: contact your lender, it's easy and free to do, and don't make the expensive mistake of paying a claims management company to do it for you."
Craig Lowther, Managing Director, PPI claims company, MoneyBoomerang, said:
"This most certainly is a key moment in the PPI story. What it amounts to is an admission that we have only seen the tip of the PPI iceberg.
"The banks now know that whatever they have paid out to date will be dwarfed by what they will be paying out in the future. For the consumer, this is a real victory and will make a tangible financial difference to many people's lives.
"We welcome the transparency and proactivity that the FSA is injecting into PPI claims. Anything that helps the victims of poor practice secure the financial compensation they deserve is to be welcomed."
