New FSA rules to stop more mis-selling scandals

The FSA and the Office of Fair Trading (OFT) have published rules designed to stop another mis-selling scandal like the payment protection insurance (PPI) debacle.

A statement from the regulator and the watchdog said that other forms of financial protection such as short-term income protection insurance, or debt freeze/debt waivers linked to a credit agreement or mortgage could be risky to consumers.

The statement said: “New payment protection products may offer benefits to customers but, if not designed and sold with consumers’ interests in mind, may pose risks similar to PPI. The previous failings in relation to PPI must not be repeated.”

The two bodies have teamed up on the new rules because many credit products are covered by the OFT under the Consumer Credit Act, while linked payment protection products are covered by the FSA under the Financial Services and Markets Act.

The FSA and the OFT said they would keep monitoring firms and taking further action when needed.

The FSA’s guidance for payment protection products said that that firms should make sure their products were fair to consumers. It stressed the importance of firms to:

• identify the target market for protection products;
• ensure that the cover offered meets the needs of that target market; and
• did not make barriers to comparing, exiting or switching cover.

The OFT section of the guidance said that firms should be aware of the relevant statutory provisions and how these may apply in relation to credit agreements with debt freeze/waiver (or similar products or product features). In particular, there should be adequate transparency to consumers regarding the nature, price and implications of such products.