Financial institution fined for mis-selling

Dear Mr Tan KL,

Regulator fines A&L record £7m for mis-selling loan insurance

Miles Brignall
The Guardian, Wednesday October 8 2008

Alliance & Leicester has been hit with a record £7m fine by the financial regulator after it was caught training staff to pressure loan customers to take out expensive payment protection insurance (PPI).

The Financial Services Authority said yesterday that it had found evidence that A&L's call-centre staff had failed to give customers details of the cost of PPI, and that the bank had tried to sell the product "without properly considering its customers' needs".

Between January 2005 and December 2007, A&L sold about 210,000 PPI policies to its personal loan customers, with the average policy costing £1,265 - turning over an extra £265m.

The City watchdog said yesterday the bank had failed to make it clear that the cover was optional, and had even trained staff to put pressure on personal loans customers when they asked why PPI was included in quotes for repayments.

PPI insurance, which is sold to those taking out credit cards, loans and mortgages, is designed to cover repayments if the policyholder is made redundant or is unable to work.

However, it has been criticised for being expensive and unsuitable for many of those who are sold policies as it rarely pays out in the event of a claim. It is also hugely profitable for the banks.

Margaret Cole, director of enforcement at the FSA, said: "The failings at A&L are the most serious we have found ... Customers should be able to rely on impartial advice based on their individual needs and demands.

"It is particularly unacceptable for a firm to train its advisers to put pressure on customers when recommending insurance cover which they have not asked for and may not need."

The FSA said the company qualified for a 30% reduction in the penalty by settling at an early stage of the FSA's investigation. Were it not for this discount, the FSA said the penalty would have been £10m.

However, Sara-Ann Burgess, who as director at PPI specialist Burgesses has campaigned against poor performing policies, said A&L would still end up making a significant profit out of the non-compliant business. "The regulator has said A&L sold approximately 211,000 policies - that equates to £265m in premiums. The £7m fine may be a record, but this sorry affair shows just how much some of the high-street banks have made out of PPI."

David Bennett, A&L's chief executive, said: "I apologise sincerely for our shortcomings. We will be writing to every customer concerned and will be working with independent accountants and the FSA to ensure we put right any disadvantage."

http://www.guardian.co.uk/business/2008/oct/08/allianceleicester.banking