Consumers who have bought payment protection insurance (PPI) with a single premium will benefit from a series of measures relating to the fairness and transparency of refunds agreed between the FSA and the PPI industry.

Clive Briault , FSA managing director of retail markets, said: "This is an excellent outcome that delivers concrete benefits for consumers. When properly sold, PPI can provide valuable protection. But we have been particularly concerned with so called 'nil refund terms'. These are contract terms that prevent consumers from receiving a partial refund if they cancel a single premium PPI policy for any reason. Such reasons could include consumers repaying the associated loan early or no longer being able to make claims due to changed circumstances."

The agreement, secured in collaboration with a number of trade associations, means that on single premium PPI policies, firms should:

  • not include nil refund terms in contracts with new customers;
  • not apply nil refund terms in contracts with existing customers;
  • contact existing customers if their contracts contain nil refund terms to inform them of how refunds will be dealt with in practice;
  • treat their customers fairly if they need to reissue the associated loan in order to cancel the PPI;
  • calculate the refund fairly, taking into account their reasonably incurred costs, which may or may not result in a pro-rata refund; and
    include in new policies examples or a table to illustrate how refunds will be calculated to improve transparency.