The FSA found that LVBS added the cost of the PPI policy to customer loan quotations without discussing it with or explaining it to the customer. This resulted in the customer paying PPI premium for the life of the loan. In addition, the FSA found that LVBS provided inadequate information to its telephone customers about the exclusions and limitations of PPI cover and often provided information which was not clear, fair and not misleading.
The FSA has imposed the fine on LVBS for breaches of the FSA’s Principles of Business (the Principles). These breaches relate to LVBS’s failure to:
1. take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems;
2. pay due regard to the interests of its customers and treat them fairly; and
3. pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading.
LVBS has agreed to refund automatically interest paid by customers on the PPI premium element of their loan. Customers will also receive letters asking them to review their policy to check they are happy with it. LBVS will also review all PPI sales made via the internet, telephone or post between 14 January 2005 and 31 January 2008. This remedial action has been taken into account by the FSA and as a result the FSA has considerably reduced the level of penalty which would otherwise have been imposed on the firm. In addition, LVBS qualified for a 30% reduction in penalty by settling at an early stage of the FSA’s investigation. If this discount had not occurred, the FSA would have sought to impose a financial penalty of £1.2 million.
This fine should be a reminder to firms of the importance placed on the Principles by the FSA and the application of principles based regulation. As reported in an earlier blog, (See: FSA taking action on TCF failings) the FSA recently fined Hastings £735,000 for failing to treat customers fairly.
