A year after the Office of Fair Trading (OFT) began investigating the widespread mis-selling of payment protection insurance (PPI), the Financial Services Authority (FSA) has, for the first time, fined a mortgage broker for selling the policies to customers who either did not need them, or on which they could not claim.

The FSA judged in the landmark case that many of those who were sold PPI policies would be likely to have their claims excluded due to pre-existing medical conditions, or already had cover in place from previous mortgages or life insurance. The FSA concluded that the Bournemouth based Regency, which specialises in selling "right-to-buy" mortgages to customers who usually find it difficult to obtain standard credit, did not make sufficient checks on its customers' full circumstances in order to make a suitable sale. This meant that customers had been sold policies that would never be able pay out, regardless of future events, thus making them worthless as protection for the policy holders.

The OFT started their investigation following a 'super complaint' by the Citizens' Advice into the PPI industry which a year ago had an estimated 20 million policies in force and was producing an annual revenue that was in excess of £5 billion. According to Citizens’ Advice Director of Policy, Teresa Perchard:

“People buy payment protection insurance because they are looking for peace of mind. Given the scale of borrowing in the UK and the amount of money consumers spend on PPI, it is vitally important that they get a product that gives them this and meets their needs at a fair price.”

Citizens' Advice put forward the complaint believing the mis-selling of PPI was endemic throughout the finance industry, with policies being too expensive and often not providing appropriate cover to those most vulnerable. In its investigations, the FSA found that a third of the firms surveyed were indeed mis-selling this type of cover, prompting the OFT to launch its own formal investigation in April 2006.

Since this time many PPI providers appear to have continued to be complacent. Mortgage and life insurance comparison site, Moneynet, states that: “Many consumer groups having expressed concerns about low claims ratios, high commission rates, price differentiations and product variations, increasing numbers of customers will seek compensation.”

British Insurance representative, Simon Burgess, stated that, “Consumer and regulatory reports tell us that PPI profits are too high and customers are receiving poor value products, so companies shouldn't be surprised when they receive a barrage of compensation claims.”

With threats of future mass compensation claims, along with the news of the recent fine levied on Regency as well as FSA warnings that other firms are being investigated, hopefully other firms will succumb to pressure and change their selling practices.