Payment Protection Insurance

If you are a bank borrower, from time to time you may receive cold calls from banks for selling the payment protection insurance (PPI). PPI is a secondary product with a loan or mortgage to provide protection in the event of accident, sickness, involuntary unemployment or death. As this is not an investment product, mis-selling cases are quite rare in HK. But in UK the consumer protection is so extensive to cover PPI.

FSA recently fined Loans.co.uk (LCUK) £455,000 for failings to minimize unsuitable sales of PPI. LCUK's primary business is as a second charge loan broker. It sold PPI on an advised basis using a script delivered over the phone when the loan or mortgage was arranged.

FSA found that LCUK failed to:

• gather sufficient information about personal circumstances prior to making a recommendation to customers;
• ensure that in the phone call advisers would give adequate disclosure of significant features, terms and exclusions to customers;
• ensure that advisers followed the scripted process and consistently recorded the customer information gathered over the phone;
• implement an adequate monitoring system to ensure suitability;
• put in place a sufficient record keeping procedures; and
• implement adequate complaint identification and handling procedures.

Based on an internal audit report, it was also found that the compliance department was not fully independent from the business units. The compliance resource was also insufficient.

Telephone sales are usually controlled by the scripts which should have been reviewed by compliance. In addition, compliance should perform sample checks to ensure that the scripted process is adequately followed. This is quite a time-consuming job. If even general insurance products like PPI are also covered, I can't imagine how big the compliance department should be.