FSA wants warnings on
mortgage endowments
By Sean Farrell
LONDON (Reuters)
Tuesday May 25, 01:46
PM
The Financial Services
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 Services 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.
CRITICISM FROM PARLIAMENT
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.
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