FINAL DECISION. Mrs C The firm. Complaint by: Complaint about: Complaint reference: Date of final decision: November 2008

Transcription

1 FINAL DECISION Cmplaint by: Cmplaint abut: Cmplaint reference: Mrs C The firm Date f final decisin: Nvember 2008 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 Mrs C and the firm. Under the rules f the Financial Ombudsman Service I am required t ask Mrs C either t accept r t reject my cnclusins, in writing. The dispute is abut the sale f a single-premium payment prtectin insurance (PPI) plicy by the firm in cnnectin with an unsecured persnal lan. The sale was made in May 2004 at a meeting at a branch f the bank befre the intrductin f regulatin f such sales by the Financial Services Authrity but during the perid f self-regulatin by the General Insurance Standards Cuncil. 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. In additin t cnsidering the parties representatins, I have als had regard t the law and regulatins, regulatrs rules, guidance and standards, cdes f practice, and what I cnsider t have been gd industry practice at the time. Fr the reasns I set ut belw, I have determined the cmplaint in favur f Mrs C and have made an award against the firm. backgrund t cmplaint a) events leading up t the cmplaint Fllwing a face-t-face discussin at her lcal branch f the firm, Mrs C agreed t brrw 20,000. Sme 5,400 f this lan was t settle previus credit-card and ther lans with the firm. The lan was t be re-paid ver seven years. The firm (acting as an insurance intermediary fr this purpse) recmmended that Mrs C shuld purchase its branded lan prtectin insurance (PPI) plicy. This PPI plicy was prvided with a single premium f 4, which was added t the lan and upn which interest was payable. b) Mrs C s cmplaint and the firm s respnse Mrs C cnsidered that the firm had acted unfairly in selling her a plicy which she nw cnsiders she did nt want r need and was therefre unsuitable. She says she was tld by the firm s representative that the lan-prtectin plicy was essential, if she were t receive her lan. She was asked n questins abut her circumstances (fr example, abut whether she had any relevant medical cnditins). In any event, she had n particular need fr the

2 plicy, as she wrked in lcal gvernment and her emplyer prvided a cmprehensive package f health, and death in service benefits. She says that when she queried the need fr the plicy, she was tld: I had n chice. If I wanted the lan then it was cmpulsry that I tk the payment prtectin ut. She says: I trusted what my accunt manager was telling me and I was surprised and shcked t find ut this was nt the case at all. I trusted her and the bank and I cannt believe this srt f thing ges n. She says the firm did nt advise me n my best interests nly n what wuld make them the mst mney. She believes the plicy was mis-sld and wants the firm t cmpensate her. The firm, in its respnse t Mrs C s cmplaint, says that Mrs C signed tw dcuments that highlighted the csts f yur lan agreement and als the details f yur prtectin cver. It says that when a custmer enquires abut Lan prtectin Insurance they are prvided with all the infrmatin with regards t any plicies that are suitable at the time f taking the lan ut. If ur custmer decides that ur prducts are nt suitable fr their needs it is the custmer s respnsibility t find a prduct that is suitable t them. The firm ntes that Mrs C was als prvided with a cpy f the plicy bklet and had a chance t cancel the plicy withut penalty within 30 days. The firm rejected Mrs C s cmplaint. It says that it des nt agree that yu were misadvised abut the ptinal lan prtectin insurance as the crrect prcedure was fllwed and the crrect paperwrk was signed by yurself. Fllwing further crrespndence with the firm (in which it said that Mrs C culd cancel the insurance plicy), Mrs C cnsidered the firm s respnse inadequate and she referred the matter t the Financial Ombudsman 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 Mrs C by returning her t the psitin she wuld have been in, had she prceeded with the lan but withut the PPI plicy. Mrs C accepted this assessment but the firm did nt. In summary, the firm said that: There was n attempt t cnceal matters frm Mrs C, and it is reasnable t assume she read the dcumentatin which set ut the salient pints f the insurance; There was n suggestin that the questin f early terminatin f the lan was raised by Mrs C; and althugh part f the lan related t previus debt cnslidatin, the evidence des nt suggest she was in financial hardship; Given that she wuld have been aware that the plicy was ptinal, and its cst, the evidence suggests that she required the cver prvided. 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. 2

3 a) relevant cnsideratins This sale was made befre the intrductin f FSA regulatin f insurance mediatin, but during the perid f self-regulatin under the General Insurance Standards Cuncil (GISC). The firm was a member f GISC at the relevant time. But in any event, I cnsider the prvisins f the GISC cde t prvide a helpful guide t gd industry practice at the time. 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 and the GISC, it is imprtant t nte the relevant regulatry regime that applied at the time. Of particular relevance t this dispute are: The GISC Cde prmised 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 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 3

4 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. I als need t take int accunt the law (and especially the prvisins f insurance law), industry cdes and gd industry practice. 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 Mrs C infrmatin that was clear, fair and nt misleading in rder t put her in a psitin where she culd make an infrmed chice abut the transactin that she was entering int and the insurance that she 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 Mrs C s needs? Overall, taking accunt f these factrs, I must determine this dispute between Mrs C 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? In this case, it is nt in dispute that it was the firm that intrduced the idea f purchasing the PPI plicy. Indeed, I nte Mrs C says that the firm suggested bth the lan and the PPI plicy t her. I cannt, f curse, nw be certain what precisely transpired between Mrs C and the firm s representative n that day in May I must evaluate the evidence available t me, and decide n the balance f prbabilities what is mst likely t have happened. At the time, the firm in its paperwrk des nt say it gave any advice r recmmendatin. It refers t the custmer having received infrmatin and the custmer making the decisin whether r nt t purchase the plicy. But there is n dispute that there was a discussin abut the plicy. And it is clear that Mrs C cnsidered that the plicy was (at the very least) recmmended t her. The distinctin at the time between advice (r recmmendatin) and simply the prvisin f infrmatin can be difficult t assess. In my view, the distinctin was nt drawn clearly by the firm. I need t cnsider the matter in a practical cmmn-sense way. The evidence des nt suggest t me a prcess where the firm simply said wrds t the effect: Sme custmers find lan prtectin insurance f assistance. We ffer the fllwing prduct and I can explain its key features if yu wuld find that helpful. Rather, the balance f the evidence is that the firm actively prmted and recmmended the plicy t Mrs C as a gd fit fr her circumstances. (I nte she says the firm did mre than this a pint I discuss in the next 4

5 sectin. But fr the present purpse, I need nt decide that pint.) S I think it reasnable t cnclude that the firm went beynd simple intrductin, r even mild encuragement, but rather it actively recmmended the prduct t Mrs C. On balance, therefre, I cnclude that the firm did, n this ccasin, make a recmmendatin that Mrs C shuld purchase the plicy. It was therefre under a duty t make sure that the recmmendatin was aimed at meeting Mrs C s interests. But in any event, a cursry cnsideratin f Mrs C s needs wuld (r shuld) have suggested t the firm that Mrs C s needs and the plicy in questin were nt well matched. The firm needed (in the wrds f the ABI cde) t ensure as far as pssible that the plicy prpsed is suitable t the needs f the prspective plicyhlder. Mrs C was a lcal-gvernment wrker with a well-prtected jb with significant sickness- and ther benefits. Given her circumstances, her need fr the plicy was questinable. Certainly the availability t her benefits frm her emplyer wuld have significantly altered the evaluatin f the prduct. Furthermre, Mrs C had entered int the lan having cnslidated previus lans. But the plicy she was recmmended was inflexible. It was paid fr by a single premium upn which interest was payable. If the lan was terminated early fr any reasn, there wuld be nly a limited return f premium. 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 Mrs C ther than t nte that she did nt seem t be in any financial hardship. But it is nt just custmers in financial hardship wh will be interested in the flexibility f the prduct they are being asked t purchase. Indeed, in my view, the balance f evidence suggests that this wuld have been a relevant cnsideratin fr Mrs C, regardless f the fact that, t date, she has retained the lan and kept t its repayment terms. I cnclude that the firm did nt take adequate steps t assess Mrs C s needs when it recmmended the plicy and that it did nt cnsider whether r nt Mrs C required flexibility in her PPI plicy. It shuld have dne s. Had the necessary assessment been made, an insurance intermediary wuld nt have recmmended the plicy at all r wuld have dne s subject t clear caveats abut its shrtcmings in Mrs C s case, enabling Mrs C t make an infrmed chice abut the issue. It is nt sufficient fr the firm t say that the custmer did nt emphasise the issue (and/r that the infrmatin was available t the custmer in the plicy and the respnsibility therefre rested slely n the custmer t assess the psitin). The firm was the prfessinal insurance adviser which had (r shuld have had) a knwledge nt nly 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 in this cntext the requirement f GISC Cde (3.2): If it is practical, we will identify yur needs by getting relevant infrmatin frm yu. I have seen n evidence t suggest that the firm asked questins abut this matter r therwise sught t clarify Mrs C s needs n this pint, r cnsider the infrmatin readily available t it frm its ther surces. The firm suggests that Mrs C had the pprtunity t becme aware f the relevant facts surrunding the cancellatin and ther terms, and that accrdingly I shuld nt uphld her cmplaint. But this ignres the fact that the firm recmmended the prduct and had an 5

6 bligatin itself t cnsider the suitability f what it was selling. Mrs C was entitled t place trust in the prfessinal advice f the firm that this was a suitable prduct fr her. I have cncluded that the firm did nt take reasnable care t ensure the suitability f its advice t Mrs C. c) did the firm prvide infrmatin that was clear, fair and nt misleading? The firm says that in additin t the 33-page plicy dcument Yur Lan Prtectin Plicy Dcument, it als prvided a credit agreement and an Optinal Lan Prtectin acknwledgement f purchase frm bth signed by Mrs C. The credit agreement sets ut the ttal amunt f credit and mnthly repayments brken dwn by the cash lan, the ptinal lan prtectin insurance lan Premium (cash price) and the lan fr repayment f existing debts. This shws a cash price fr the PPI plicy f 4, with mnthly payments f The amunt f interest t be paid in each case is nt specified, nr is the ttal payment ver the perid f the lan. There are tick bxes fr ptinal lan prtectin? and premium advanced as part f lan? Bth have been cmpleted by the firm with X in the yes bxes. The acknwledgment f purchase dcument refers t cnfirmatin that the custmer has received infrmatin relating t the fllwing the cst, terms and cnditins and exclusins f the ptinal lan prtectin plicy, the lan agreement and lan prtectin plicy dcument cntained within the plicy dcument wallet. The wallet-cver includes a summary f cver which summarises the benefits in tick-bx frm, sets ut sme eligibility issues, and pints plicyhlders t the enclsed plicy dcument. There is n reference t the single-premium arrangement r t the refund terms (if the plicy is terminated) n either the wallet-cver r in the acknwledgment dcument. The plicy dcument deals with are yu eligible fr a premium refund? n page 27/33. 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 8% f the premium. I nte that Mrs C says she was tld that the plicy was nt ptinal but essential, if she was t btain the lan. The firm says that is nt true. I cannt be certain nw what was said. But clearly, the papers that Mrs C signed referred t the plicy thrughut as ptinal. Hwever, set against that, I nte that the tick bxes n the credit agreement had been cmpleted by the firm. I have als seen sme infrmatin frm the firm abut its sales prcess, which is part f a dcument badged franchise grwth - Imprtant Changes t the Lan Prtectin Sales Prcess. This shws that if the custmer did nt purchase the plicy with their lan, they were required t sign a declaratin that they wished t prceed withut a PPI plicy an acknwledgement f nn-purchase. Evidence frm ther surces abut the market and its sales practices (including the Office f Fair Trading and Cmpetitin Cmmissin enquiries and reprts abut recent practice by the FSA) als tend t add weight t Mrs C s accunt. 6

7 I think it is als relevant t nte at this pint that the plicy represented questinable value fr mney fr Mrs C. The sickness and unemplyment benefits under the plicy prvide fr the mnthly repayments against the lan t be met during the perid f incapacity r unemplyment subject t varius plicy restrictins. In Mrs C s case, the premium fr the PPI plicy she was sld added 23% t the lan she was taking ut. Over the perid f the lan, nce interest is taken int accunt, it wuld cst abut 6,580. Given Mrs C s circumstances In particular, it seems dubtful that a fully infrmed custmer wuld have pted fr such a prduct, had she been cnfident it wuld have n impact n whether r nt the firm wuld advance the lan. Mrs C says that the firm tld her that the plicy was, in effect, a requirement if she was t btain the lan. It is difficult nw t reach a cnclusin n this pint. I need t balance her credible accunt f events with the paperwrk that was prvided at the time, which nted clearly that the plicy was ptinal. There are, n dubt, sme fine distinctins f language that wuld draw a line between a strict requirement and simply misleading sales practices. Fr example, we cnsider this plicy t be essential is nt quite the same as we require yu t take ut this plicy. Overall it seems t me likely that the firm did nt in fact say that the plicy was a strict requirement, but rather it left a clear and strng impressin with Mrs C that the sales were clsely cnnected. The firm had a single prduct that it wished t sell, whatever the needs f its custmers. S whilst Mrs C did nt, in fact, need t agree t the PPI plicy in rder t btain the lan, I can well see that she wuld have gained the impressin that the purchase was, in practice, essential. S whilst I d nt find that the firm strictly required Mrs C t take ut the plicy as a cnditin f the lan, I d cnclude that the sale was intended t leave Mrs C with the impressin that it was essential t take ut the PPI plicy. Accrdingly, I am nt satisfied that the firm acted with utmst gd faith in cnducting this transactin nr that it avided the cnflicts f interest inherent in the sale. But in any event, I d nt accept the firm s assertin that the infrmatin it gave Mrs C was adequate in the circumstances t alert her t the nature f the cancellatin/refund terms and mre generally t put her in the psitin where she culd make an infrmed chice. Only the mst assiduus f readers wuld have been able t identify frm the infrmatin prvided by the firm the nature f the single-premium transactin that it encuraged Mrs C t enter. 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 Mrs C. summary f cnclusins and findings relevant t the determinatin Fr the reasns set ut abve, I have cncluded that in the case f Mrs C, 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, Mrs C and that it did nt treat her fairly. Accrdingly, I cnclude that I shuld determine this cmplaint in favur f Mrs C. 7

8 fair cmpensatin Having cncluded that I shuld determine the cmplaint in favur f Mrs C 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 (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 r she wuld have been in, but fr the failure n the part f the firm. Overall, it seems t me likely that, prperly advised and infrmed, Mrs C wuld nt have purchased this PPI plicy frm the firm (but Mrs C 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 Mrs C by putting her (s far as is nw practicable) in the psitin she wuld have been in, had she nt taken ut the PPI plicy. This fllws the general apprach prpsed by ur adjudicatr in her assessment f the case. S, subject t Mrs C s agreement t the cancellatin f the PPI plicy and t the recnfiguratin f the lan, the firm shuld: A. re-arrange the lan t Mrs C by writing ff all amunts that remain utstanding in relatin t the brrwing fr the PPI premium, including any interest and charges, s that, in future, the number and level f utstanding repayments against the lan (and any charges and fees) are the same as wuld nw have applied had Mrs C taken the riginal lan sum ( 19,999.99) withut the PPI cver (with the firm waiving fr this purpse any charges r fees that wuld nrmally apply t a change in the lan); B. calculate the amunt Mrs C has paid t the firm frm time t time up t the time f settlement in relatin t the additinal brrwing fr the PPI premium (including interest charged), less any premium refund actually paid t Mrs C n cancellatin f the plicy; C. t the sums calculated at (B), the firm shuld add interest frm the pints Mrs C made the payments t the firm t the pint the firm settles this award in full with that interest calculated at a rate f 8% simple per annum. 8

9 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 Mrs C, the firm shuld set ut clearly an accunt f hw it has made the calculatins set ut abve and prvide a statement f the new instalments t be paid n the lan and the amunt utstanding. It shuld pay the duly calculated amunt t Mrs C and make the required changes t the lan withut delay. decisin Fr the reasns set ut abve, I determine this cmplaint in favur f Mrs C. I require the firm t pay Mrs C fair cmpensatin in accrdance with the calculatin f redress I set ut abve. I make n further award against the firm. Tny Brman mbudsman 9