FSA warranties loophole leaves consumers unprotected

Michael FaulknerThousands of motor dealers could escape regulation because of limitations in the FSA rules, leaving consumers unprotected. The FSA said dealers who sold or gave away their own extended warranties, not underwritten by an insurance company, would not be subject to its rules. That means the dealer can set up a claims fund and make a profit from it. The dealer can still avoid regulation because the warranty does not constitute a contract of insurance.Should a third party be used to handle the claims and administration, the dealer may still escape regulation. The FSA remains unclear on this point RAC Warranties managing director Don Pinkney said the FSA's position would legitimise "sharp practice" among dealers. "I know of one dealer who left 7,000 customers exposed," he said. Pinkney added that 90% of dealers might choose to avoid regulation as a result. FSA compliance specialist Branko Bjelobaba said: "The FSA is not giving clear enough instructions. In an innocent way it is encouraging an unregulated market. How can the FSA say it is protecting consumers by doing this?" An FSA spokesman said: "The FSA is restricted by the Regulated Activities Order as to how it defines an insurance contract. These warranties are not general insurance policies. It is not our job to impede competition or determine product development."

FSA urges secondary intermediaries to applyThe FSA is to launch a further advertising campaign to encourage secondary intermediaries to apply for authorisation.An FSA spokesman declined to comment on whether the regulator was concerned by the low number of secondary market applicants. "There is still time to apply. The indications are that many firms are taking the appointed representative option." FSA statistics to 3 SeptemberApplications: Primary intermediaries: 5,044Secondary intermediaries: 4,147Minded to authorise letters:Primary intermediaries: 3,394Secondary intermediaries: 2,845