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FSA wants warnings on mortgage endowments

selling canada life endowment policy

FSA wants warnings on mortgage endowments
By Sean Farrell

LONDON (Reuters)

Tuesday May 25, 01:46 PM

The Financial Conduct Authority says it will make insurers and other financial companies alert customers when their right to complain about improper selling of mortgage endowments is due to lapse.

Companies must warn customers who face a shortfall from their mortgage endowments at least six months before their right to complain ends, the Financial Conduct Authority said on Tuesday. The rule comes in on June 1.

Mortgage endowments are meant to pay off a home loan by investing in financial markets. Life insurers and banks sold them aggressively in the 1980s and 1990s, but stock market falls have left customers with an estimated 40 billion pounds shortfall in the money needed to repay loans.

Consumer groups have said many customers were not told about the risk of a shortfall. Endowment holders have the right to complain about mis-selling for three years after they are warned that the investment is unlikely to repay the loan.

"We are applying these measures straight away to ensure that consumers who believe they were mis-sold their endowment policies are clear about the date their right to complain runs out," FSA Retail Themes Director Anna Bradley said in a statement.

Many insurers are allowing people to complain even after their right to do so has passed but the rule change is to crack down on those still imposing a time limit, an FSA spokeswoman said.

The FSA said the total number of complaints about endowment mis-selling was 452,201 at the end of March, an increase of 71,406 from the end of December. Companies have paid or set aside about one billion pounds to compensate customers, the watchdog added.


The British parliament's influential Treasury Select Committee issued a report in March criticising the insurance industry for its aggressive sales practices on endowment policies. The committee questioned the heads of Britain's biggest insurers Prudential, Standard Life, Aviva (LSE: AV.L - news) and Legal & General again on Tuesday.

The Association of British Insurers said on Tuesday it had responded to the committee by commissioning two studies to examine commission-based sales practices and customer service.

The FSA has fined insurers and banks for misleading customers when selling mortgage endowments. Royal Scottish Assurance was hit with a two-million-pound fine in 2000. Lloyds TSB (LSE: LLOY.L - news - msgs) was fined one million pounds by the FSA in 2002 for mis-selling endowment mortgages.

The FSA has also fined Prudential 750,000 pounds and rival Royal & Sun Alliance 950,000 pounds for not spelling out the risk of products. Legal & General is contesting a 1.1-million-pound fine imposed by the FSA in November.