The Financial Services Authority has today fined GE Capital Bank Ltd (GECB) £610,000 for failing to have adequate systems and controls for selling insurance which includes Payment Protection Insurance (PPI) and for failing to treat its customers fairly.
GECB's main business is providing credit finance through store cards, credit cards and sales finance. The store cards are usually branded in the name of the retailers (who are appointed representatives of GECB) and the insurance is usually offered to customers at the till when they are applying for a store card. If not bought at the till, customers are contacted later by GECB's telesales staff.
At any one time, approximately 300,000 retail assistants employed by the stores are permitted to sell insurance on behalf of GECB. In 2005 alone, over 850,000 policies which included PPI were sold on its behalf.
FSA Director of Enforcement Margaret Cole said:
"Millions of people take out store cards every year. They need to know that PPI is almost always optional and should consider whether they need it before signing up.
"Our focus on Payment Protection Insurance will remain very high this year. We are determined to see significantly better practice in PPI sales and will crack down where firms fail to treat their customers fairly."
This fine follows two phases of FSA work looking into PPI and the way it is sold. By the end of June 2007, the FSA will have visited over 200 PPI firms in two years. To help consumers make informed decisions, the FSA's consumer website www.moneymadeclear.fsa.gov.uk includes questions that people should ask themselves before taking out PPI.
The FSA found that GECB failed to review and amend its procedures for selling insurance in light of its own evidence, emerging from Q2 2005, of widespread non-compliant selling practices. The breaches arose in the following areas:
• Sales: the firm failed where appropriate to review, amend and then operate its sale procedures to ensure that all customers received adequate information about the policy before they made a decision on whether to take insurance.
• Training: in light of evidence that sales staff were not complying consistently with its sales procedures, the firm failed to amend its training procedures.
• Monitoring and management information: the firm failed where appropriate to ensure its monitoring procedures were effective and failed to act in response to management information which was collected and available.
• Customers: the firm failed to implement any procedure to contact customers to remedy the non-compliant sales identified by its monitoring procedures.
• Compliance: the firm failed to resource the compliance function adequately.
GECB is continuing to carry out a remedial action programme to review and improve its systems and controls. To reduce the risk that customers may have lost out GECB is carrying out a comprehensive customer contact exercise and will pay compensation where appropriate. In this particular case the financial impact on most customers was likely to have been modest. The FSA took these factors into account in determining the level of the financial penalty.
By agreeing to settle at an early stage of the FSA investigation GECB qualified for a 30% discount under the FSA's executive settlement procedures – without the discount the fine would have been £870,000. Without the commitment to remedial action and appropriate redress the financial penalty would have been substantially higher.