FINAL DECISION. Mr A Complaint about: Complaint by: the firm Complaint reference: Date of final decision: November summary of complaint

Transcription

1 FINAL DECISION Cmplaint by: Mr A Cmplaint abut: the firm Cmplaint reference: Date f final decisin: Nvember 2008 summary f cmplaint This final decisin is issued by me, Tny Brman, an mbudsman with the Financial Ombudsman Service. It sets ut my cnclusins n the dispute between Mr A and the firm. Under the rules f the Financial Ombudsman Service, I am required t ask Mr A either t accept r t reject my cnclusins, in writing, befre 11 December The dispute is abut the sale f a single-premium payment prtectin insurance (PPI) plicy recmmended by the firm in cnnectin with an unsecured persnal lan. The recmmendatin was made in May 2005 (after the intrductin f regulatin f such sales by the Financial Services Authrity) at a meeting at a branch f the firm. I have cnsidered all the available evidence and arguments frm the utset, in rder t decide what is fair and reasnable in the circumstances f this cmplaint. Fr the reasns I set ut belw, I have determined the cmplaint in favur f Mr A and have made an award against the firm. backgrund t cmplaint a) events leading up t the cmplaint Mr A wished t brrw 6,000. He cnsidered a number f firms befre discussing at his lcal branch the pssibility f a lan frm this firm. In May 2005 the firm agreed t ffer Mr A an unsecured lan f 6,000 that was t be repaid ver fur years. The firm (acting as an authrised insurance intermediary fr this purpse) recmmended that Mr A shuld purchase its branded lan prtectin insurance (PPI) plicy (the greater part f which was underwritten by a general insurer within the same grup f cmpanies as the firm). This PPI plicy was prvided with a single premium f that was added t the lan and upn which interest was payable. Tw years later Mr A was able t settle the lan early. He did s. But was unhappy that when the assciated PPI plicy was cancelled at the same time as the lan he received a refund f premium f (sme 18% f the ttal premiums he had paid, althugh nly arund a half f the plicy term had expired). b) Mr A s cmplaint and the firm s respnse Mr A cnsidered that the firm had acted unfairly. He had been persuaded t take ut the lan because he had been tld that it was mre flexible than a cheaper lan ffered by a

2 cmpetitr f the firm. He says he tld the firm s representative that he expected t be able t settle the lan early. Had he been aware f the true facts, he says he wuld nt have entered int the arrangement with the firm. He says he has been a custmer f the firm fr ten years and that they had gained his trust. He cnsiders that his trust has been taken advantage f by the firm and that he has been cnned. He believes the plicy was mis-sld and wants the firm t cmpensate him. After sme delays, the firm respnded t Mr A s cmplaint. It says that Mr A had wanted a PPI plicy and that he had signed an agreement t that effect which, accrding t the firm, shwed the lan amunt yu are brrwing, hw much this csts per mnth, the cst f insurance, hw much the insurance csts per mnth and finally, the ttal mnthly instalment (which includes the lan mnthly instalment and the insurance mnthly instalment). The firm ntes that Mr A was als prvided with a cpy f the plicy bklet and had a chance t cancel the plicy withut penalty within 30 days. Mr A felt this respnse was inadequate and he referred the matter t this Service. My adjudicatr cnsidered the matter. In her written assessment f the case she cncluded that the plicy had indeed been mis-sld and that the firm shuld cmpensate Mr A by returning him t the psitin he wuld have been in had he prceeded with the lan but withut the PPI plicy (in effect t return t Mr A the payments he had made in respect f the PPI plicy plus interest). Mr A accepted this assessment but the firm did nt, s as agreement cannt be reached the matter falls t me t determine. my findings I have cnsidered all the evidence and arguments very carefully frm the utset including the firm s respnse t the adjudicatr s cnclusins in rder t decide what is fair and reasnable in the circumstances. Having dne s, I have cme t the same verall cnclusins as the adjudicatr, and fr bradly the same reasns. a) relevant cnsideratins This sale was made after the intrductin f FSA regulatin f insurance mediatin. Whilst the general principles that I need t cnsider in assessing cases such as this are, in large part, similar bth befre and after regulatin by the FSA, it is imprtant t nte the relevant regulatry regime that applied at the time. The FSA Principles apply t all authrised firms including the firm (acting as an insurance intermediary). Of particular relevance t this dispute are: Principle 1 (integrity): A firm must cnduct its business with integrity Principle 6 (Custmers' interests): "A firm must pay due regard t the interests f its custmers and treat them fairly" Principle 7 (Cmmunicatins with clients): "A firm must pay due regard t the infrmatin needs f its clients, and cmmunicate infrmatin t them in a way which is clear, fair and nt misleading" Principle 8 (Cnflicts f interest): A firm must manage cnflicts f interest fairly, bth between itself and its custmers and between a custmer and anther client 2

3 Principle 9 (Custmers: relatinships f trust): A firm must take reasnable care t ensure the suitability f its advice and discretinary decisins fr any custmer wh is entitled t rely upn its judgment In additin, it is relevant t take int accunt the mre detailed rules set ut in ICOB (the insurance cnduct f business rules) especially the prvisins f ICOB 4.3 (suitability), ICOB 4.4 (statements f demands and needs) and ICOB 5.3 (prvisin f Infrmatin t retail custmers). In particular, ICOB 4.3.1R requires that: An insurance intermediary must take reasnable steps t ensure that, if in the curse f insurance mediatin activities it makes any persnal recmmendatin t a custmer t buy r sell a nn-investment insurance cntract, the persnal recmmendatin is suitable fr the custmer's demands and needs at the time the persnal recmmendatin is made. I als need t take int accunt the law (and especially the prvisins f insurance law), industry cdes and gd industry practice. In this respect, it is relevant t nte that there has fr sme time been regulatin r cdes gverning the sale f insurance prducts such as PPI. There is much in cmmn between the present statutry regulatry regime and the nn-statutry prvisins that preceded it (and, indeed, the psitin at law). The nn-statutry prvisins n lnger apply as specific requirements n thse selling insurance, but I cnsider they still represent a helpful guide t gd industry practice. Fr example, in the perid immediately befre statutry regulatin in 2005, the General Insurance Standards Cuncil (GISC) prmised in its Cde that its members wuld: act fairly and reasnably when we deal with yu [the custmer]; make sure that all ur general insurance services satisfy the requirements f this Private Custmer Cde; make sure all the infrmatin we give yu is clear, fair and nt misleading; avid cnflicts f interest r, if we cannt avid this, explain the psitin fully t yu; give yu enugh infrmatin and help s yu can make an infrmed decisin befre yu make a final cmmitment t buy yur insurance plicy. The GISC Cde prvisins included: 3. We will give yu enugh infrmatin and help s yu can make an infrmed decisin befre yu make a final cmmitment t buy yur insurance plicy. 3.2 We will make sure, as far as pssible, that the prducts and services we ffer yu will match yur requirements If it is practical, we will identify yur needs by getting relevant infrmatin frm yu. We will ffer yu prducts and services t meet yur needs, and match any requirements yu have. If we cannt match yur requirements, we will explain the differences in the prduct r service that we can ffer yu. If it is nt practical t match all yur requirements, we will give yu enugh infrmatin s yu can make an infrmed decisin abut yur insurance. 3.3 We will explain all the main features f the prducts and services that we ffer, including any significant r unusual restrictins r exclusins; any significant cnditins r bligatins which yu must meet. 3

4 3.4 We will give yu full details f the csts f yur insurance 3.5 If we give yu any advice r recmmendatins, we will: nly discuss r advise n matters that we have knwledge f; make sure that any advice we give yu r recmmendatins we make are aimed at meeting yur interests; and nt make any misleading claims fr the prducts r services we ffer r make any unfair criticisms abut prducts and services that are ffered by anyne else. The Assciatin f British Insurers (ABI) cdes (which pre-dated GISC) als set ut relevant requirements. Fr example, the ABI General Insurance Business Cde f Practice fr all Intermediaries (1989) (the ABI Cde) said that it shall be an verriding bligatin f an intermediary at all times t cnduct business with utmst gd faith and integrity. The ABI Cde stated as ne f its general sales principles that the intermediary shall ensure as far as pssible that the plicy prpsed is suitable t the needs f the prspective plicyhlder. It als included requirements abut Explanatin f the Cntract. It said the intermediary shall explain all the essential prvisins f the cver affrded by the plicy r plicies he is recmmending s as t ensure as far as is pssible that the prspective plicyhlder understands what he is buying; [and] draw attentin t any restrictins and exclusins applying t the plicy. Taking the relevant cnsideratins here int accunt, I cnclude that the verarching questin I need t cnsider in this case is whether the firm gave Mr A infrmatin that was clear, fair and nt misleading in rder t put him in a psitin where he culd make an infrmed chice abut the transactin that he was entering int and the insurance that he was buying; and whether, in giving any advice r recmmendatin, the firm tk adequate steps t ensure that the prduct it recmmended was suitable fr Mr A s needs. Overall, taking accunt f these factrs, I must determine this dispute between Mr A and the firm by reference t what is in my pinin fair and reasnable in all the circumstances f the case. b) did the firm take adequate steps t ensure that its recmmendatin was suitable? It is clear that the firm gave Mr A a recmmendatin. It was therefre under a duty t take all reasnable steps t ensure that recmmendatin was suitable. The firm prvided Mr A with a dcument at the pint f sale titled Yur Persnal Summary & Our Recmmendatin(s). This described Mr A s demands and needs as t cver lan. It set ut details f ur prduct recmmendatin: - lan prtectin insurance and explained the reasns fr this recmmendatin as custmer nly gets ssp [statutry sick pay] and wuld like t be cvered in the event f accident sickness and unemplyment. Under the heading Persnal circumstances including any demands and needs nt met, the firm says Yu have nt advised me f any persnal circumstances that may affect the cver yu are currently eligible fr. This dcument is nt signed by the parties, but it cncludes with an Insurance Advisrs Declaratin: I have recmmended the prduct(s) included in this dcument as being suitable fr yu n the basis f the infrmatin supplied by yu in relatin t yur demands and needs, existing relevant insurances and persnal circumstances. Mr A says that he entered int the arrangement with the firm because the firm s fficial he spke t tld him that, unlike a cmpetitr prduct he had been cnsidering, the lan had n early settlement fee. He says he mentined that he hped t settle the lan befre the end f fur years. 4

5 The firm has n recrd f this part f its discussin with Mr A. In its respnse t my adjudicatr s cnclusins, the firm says that it is clear sme discussin tk place between its representative and Mr A. It says it is reasnable t assume that the terms f the plicy were prperly explained and t assume any questins Mr A had abut the plicy were answered accurately. I cannt be certain nw what was and was nt discussed at the time. But I have n reasn t dubt Mr A s recllectin. And the firm has nt directly challenged it. In any event, it seems t me that, in thinking abut any lan and cnnected insurance plicy, a relevant cnsideratin is hw far that arrangement is flexible, shuld the custmer s circumstances change. In this market it is nt uncmmn fr custmers t re-arrange their lans befre the end f the planned term. The firm has prvided n evidence t shw that this was nt, in fact, a relevant cnsideratin fr Mr A. Indeed, in my view the balance f evidence suggests that it was. I cnclude that the firm did nt cnsider whether r nt Mr A required flexibility in his PPI plicy, when cnsidering the prduct it shuld recmmend. It shuld have dne s. It is nt sufficient fr the firm t say that the custmer did nt emphasise the issue (and/r that the issue was nt set ut in a demands and needs statement by the custmer). The firm was the prfessinal insurance adviser which had (r shuld have had) a knwledge nt just f the prducts available, but als f the way in which the substance f thse prducts was likely t interact with the cmmn demands and needs f its custmers particularly where the feature was significant and unusual. I nte that ICOB (4.3.2R) requires an insurance intermediary in assessing its custmer s demands and needs t: seek such infrmatin abut the custmer's circumstances and bjectives as might reasnably be expected t be relevant in enabling the insurance intermediary t identify the custmer's requirements. This must include any facts that wuld affect the type f insurance recmmended, such as any relevant existing insurance and that the intermediary shuld have regard t any relevant details abut the custmer that are readily available and accessible t the insurance intermediary. I have seen n evidence t suggest that the firm asked questins abut this matter r therwise sught t clarify Mr A s needs n this pint r t cnsider the infrmatin readily available t it frm its ther surces. The firm suggests that Mr A had the pprtunity t becme aware f the relevant facts surrunding the cancellatin terms and that, accrdingly, I shuld nt uphld his cmplaint. But this ignres the fact that the firm recmmended the prduct. Mr A was entitled t place trust in the prfessinal advice f the firm that this was a suitable prduct fr him. I have cncluded that the firm did nt take reasnable care t ensure the suitability f its advice t Mr A. c) did the firm prvide infrmatin that was clear, fair and nt misleading? The firm says that in additin t the Yur Persnal Summary & Our Recmmendatin(s) dcument, it prvided an 8-page leaflet titled yur quick guide t cmprehensive lan prtectin insurance (the quick guide); a 3-page lan agreement dcument; and a 33-page plicy dcument. The quick guide, under the FSA s keyfacts lg, prvides a plicy summary. On the back page, under the heading imprtant Infrmatin, it says: The insurer will prvide cver during the perid f insurance accrding t the terms set ut in yur plicy in return fr payment f the premium. Premiums, fees and charges In the event f yu settling yur lan agreement 5

6 early a standard administratin fee f 45 will apply. N explanatin is made in that keyfacts dcument f the single-premium arrangement and the terms that apply t refunds. The firm ntes that there is a prvisin n refunds set ut in the (separate) plicy dcument n page 26: are yu eligible fr a premium refund? This explains: T help yu with the purchase f yur lan prtectin cver, the cst f the insurance premium has been added t the amunt yu have brrwed. The cst f yur insurance is spread evenly ver the duratin f yur lan. The plicy bklet then explains hw a premium refund wuld be calculated: using a frmula that accunts fr the way risk changes ver the term f yur lan. Examples are given t give yu an idea f hw the calculatin wrks. Fr example, shwing that after 24 payments f a 36-mnth lan, the refund wuld amunt t 11% f the premium. The separate lan-agreement dcument sets ut the amunt f credit and premium in ttal and as a mnthly repayment. It als sets ut the ttal premium ( ) and the interest n that premium ( ) t give a ttal price f the lan prtectin ( 1,131.93). I d nt accept what appears t be the firm s assertin that this was adequate infrmatin in the circumstances t alert the custmer t the nature f the cancellatin/refund terms. It seems t me that the keyfacts presented by the firm here were likely t mislead all but the mst assiduus f readers. The reference t the administratin fee, and nt t the impact f the refund arrangements, did nt give a balanced accunt f the psitin it failed t be clear, fair and nt misleading, ntwithstanding the infrmatin in the plicy dcument. This was infrmatin that the firm knew (r ught t have knwn) was material fr custmers in evaluating the prduct. I cnclude that the firm did nt pay due regard t the infrmatin needs f Mr A. summary f cnclusins and findings relevant t the determinatin Fr the reasns set ut abve, I have cncluded that in the case f Mr A, the firm: failed t take reasnable care t ensure the suitability f its advice; did nt pay due regard t the infrmatin needs f its custmer. Overall, I cnclude that the firm failed t pay sufficient regard t the interests f its custmer, Mr A, and that it did nt treat him fairly. Accrdingly, I cnclude that I shuld determine this cmplaint in favur f Mr A. fair cmpensatin Having cncluded that I shuld determine the cmplaint in favur f Mr A, I nw need t cnsider what award t make. In determining the award, the law can prvide a useful tl with which t analyse the variety f ways in which claims t cmpensatin can be made. But it is fr the mbudsman t arrive at a view as t what he cnsiders fair cmpensatin. Where a cnsumer buys an insurance plicy frm an intermediary r insurer n the insurer s standard terms, there are a number f avenues that might be pursued in law in the event that the cnsumer has suffered detriment as a result f the sales prcess. The varius heads f claim that might be cnsidered in such cases include negligent advice, breaches f bligatin, misrepresentatin, mistake, nn-disclsure r a failure f cntract frmatin. The law prvides slightly different remedies fr a successful claimant in these different heads f claim. Sme give rise t a right fr the insurance t be regarded as cancelled frm the start 6

7 (fr instance where an insurer r its agent has failed t disclse significant features f the plicy); thers t a right t cmpensatry damages. If it is right t treat the insurance as cancelled frm the start, the premium is refundable but claims cannt be paid. Cmpensatry damages fr unsuitable advice, r ther heads f damage, may amunt t the cst f taking ut the plicy which arrives at the same general result but by a different rute. Taking accunt f these cnsideratins, my nrmal apprach is t try t put the custmer back int the psitin he wuld have been in but fr the failure n the part f the firm. Mr A suggests he wuld have arranged his lan with anther prvider withut the benefit f a PPI plicy. But it is nt pssible t say nw with any cnfidence what wuld have happened had the firm given Mr A apprpriate advice. Overall, hwever, it seems t me likely that prperly advised and infrmed, Mr A wuld nt have purchased this PPI plicy frm the firm (but Mr A wuld still have prceeded with the lan). Accrdingly, in the circumstances f this case, I cnsider that the apprpriate apprach t fair cmpensatin is t require the firm t cmpensate Mr A by putting him (s far as is nw practicable) in the psitin he wuld have been in had he nt taken ut the PPI plicy. This fllws the general apprach prpsed by ur adjudicatr in her assessment f the case. The relevant cnsideratins are: A: The mnthly payments Mr A made twards the lan (including the element t cver the PPI premium and interest); B: The mnthly repayments that wuld have been required, had a lan been taken ut ver the same duratin but withut the additinal element t cver the PPI premium; C: The amunt that Mr A paid in settlement f the verall lan (including the PPI element) net f any PPI premium refund he received but including all fees and charges; D: The amunt that Mr A wuld have been required t pay (including all fees and charges) t settle the lan (n the same date as in C), had he taken a lan with the same duratin but withut the additinal brrwing t cver the PPI plicy premiums and assuming that he had previusly made the mnthly payments apprpriate t such a lan as calculated at B. S the firm shuld pay cmpensatin f: A minus B (in effect, the net mnthly verpayment twards the lan), multiplied by the number f mnthly payments made; plus C minus D (in effect, the net verpayment f settlement csts). T these sums the firm shuld add interest at a rate f 8% simple per annum in each case frm the date Mr A made the relevant (net) payments until the date this award is paid in full. The calculatins f redress here are nt straightfrward. I wuld cnsider any necessary applicatin frm either party cncerning the precise details f the calculatins t be undertaken. S as t assist Mr A, the firm shuld set ut clearly an accunt f hw it has made the calculatins set ut abve. The firm shuld then pay the duly calculated amunt withut delay. 7

8 decisin Fr the reasns set ut abve, I determine this cmplaint in favur f Mr A. I require the firm t pay Mr A fair cmpensatin in accrdance with the calculatin f redress I set ut abve. I make n further award against the firm. Tny Brman mbudsman 8