Mis Selling Throughout The Years by:Martyn Witt

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ENDOWMENTS: Perhaps along with pensions the most widely recognised of mis-selling issues

. Once again Lloyds TSB was fined a record 1million in December 2002 by the FSA with the bank setting aside 165 million to compensate between 42,000 and 46,000 policy holders (averaging 4000 per policyholder). The mis-sold endowment mortgages occurred between 1995 and 1999. As well as the Abbey Life arm of Lloyds TSB also involved were other providers identified by the FSA such as Royal London Group, Royal Scottish Assurance (part of RBS), Scottish Amicable, Royal and Sun Alliance and Winterhur. An estimated 430,000 homebuyers were in receipt of a total of 1bn in compensation. In June 2005, the Financial Ombudsman Service (FOS) revealed it was receiving 1,300 endowment mis-selling claims a week. Widespread unsuitable recommendations of mortgage endowments were made to unsuspecting consumers, again this advice being driven by large commissions.

PPI (Payment Protection Insurance):In 2004 it was revealed that margins on PPI made by Barclays Bank was a profit of 240m on a turnover of 350m from such policies. Across the loans industry it was estimated that lenders made 5bn a year. It was also estimated that around 2 million people may hold policies which they are not able to claim on. PPI policies bought from lenders at point of sale can cost up to 28 for every 100 covered, however standalone policies cost less than 3 per 100. Amongst those firms fined were Alliance and Leicester (7million), Liverpool Victoria (840,000) and Egg (721,000) being the 20th company to be fined by the FSA. The Competition Commission has now banned PPI from being sold alongside credit cards and personal loans. PPI sales were driven by large commissions estimated at around 65% of the total premium.

MORTGAGE MISSELLING:The most recent case of mis-selling concerns a precedent involving mortgage mis-selling. The issue concerned a housing association tenant, who had suffered the Trauma of repossession. A valuable promise of a rent fixed for life was in place. However, a mortgage adviser persuaded him to buy the property and failed to consider the consequences when the discounted mortgage rate ended. albeit recent, could well be the tip of a very large iceberg. The associated facets of regulated mortgages will no doubt prompt a flurry of activity within self certification and the more vulnerable borrowers. Council right to buy tenants have always been heavily canvassed. The Mortgage Code of Business along with The Financial Services act is there to protect consumers.

CREDIT CARD CHARGES:In 2006 The Office of Fair Trading advised that credit card default charges were unfair and that these charges had generally been set at a significantly higher level than is legally fair. These charges had netted in excess of 300 million a year. Where credit card default charges are set at more than 12, the OFT will presume that they are unfair. A default charge is not fair simply because it is below 12. A default charge should only be used to recover certain limited administrative costs. Card issuers were required to confirm their response to the OFT statement by 31 May 2006 in response to fair and appropriate charge. A fair default charge should not exceed a reasonable estimate of certain limited administrative costs which the credit card issuer reasonably expects to incur as a result of default.

BANK CHARGES:In February 2009 banks had been urged by consumer groups to throw in the towel, after losing an appeal over unauthorised overdraft charges.Seven high street banks and one building society (Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, RBS and Nationwide) were engaged in the test case, led by the Office of Fair Trading, to assess whether overdraft and unpaid item charges, which can can be as much as 38, are excessive. Banks had already paid out 560m to thousands of customers who claimed they had been subjected to unfair charges. Charges represent 2.5 billion each year to the banks. assessed for fairness.

MORTGAGE EXIT FEES:The Financial Services Authority (FSA) concluded in June 2006 that some lenders might have increased their mortgage exit fees unjustifiably. It then launched an investigation into the increases of exit fees and whether they complied with the Unfair Terms in Consumer Contracts Regulations 1999 (UTCC). Mortgage exit administration fees remained static for many years. Then, in 2004 prompted largely by one lender, Alliance & Leicester, they started to rise dramatically to around 300. The true cost of closing a mortgage is estimated to be 35.

PENSIONS:Began in the 1980's but emerged around 1994 when it emerged that many consumers, acting on flawed advice from salesmen motivated by huge commissions, had swapped their occupational schemes for private policies leaving them worse off. The FSA admitted that 11billion seemed inadequate and after 15 years to put right the cost was nearer 15billion, the final cost being compounded by interest rates and inflation along with revised life expectancy. Lloyds TSB alone set aside over 800 million for compensation for around 100,000 people. The FSA spent 10million on an advertising campaign in an attempt to draw the issue to a close throughout early 1999 and reinforcing direct mailings from firms to their customers.

HIGH RISK BONDS:Otherwise known as 'Precipice' Bonds or 'high income' bonds which originally surfaced around 2000. Lloyds TSB again faced a substantial compensation bill of 98 million, 44% of the policies sold being unsuitable for those individuals. The FSA also fined Lloyds TSB 1.9 million in 2003. The product was designed by the Scottish Widows Group who were acquired by Lloyds TSB in March 2000. In total, 51,00 policies were sold. In 2004 the FSA also fined Capita Trust (formerly Royal & Sun Alliance Trust Company Ltd) 300,000 and compenasation to customers was put at around 3.5million. The marketing of precipice bonds potentially placed a significant number of customers at risk of loss. Higher risk complex products should be promoted with care. Reasonable steps to ensure consumers understood the nature of the risks involved in precipice bonds were not taken.

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