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Banks are writing to millions of customers advising them that they may have been mis-sold payment protection insurance (PPI), following the release of new guidelines by the Financial Services Authority (FSA).

The FSA estimates that between four million and 12 million letters will be sent out, but not everyone who has been mis-sold PPI will receive a letter as banks are only required to write to those who have been ‘systemically mis-sold’ PPI.

Consumers are therefore advised to check if PPI insurance was added to any loans, credit cards and store cards taken out in the last 10 years, even if they do not receive a letter from their lender.

Under FSA rules, the letters sent out by banks must be written in jargon-free language and should clearly state a time limit for making a complaint.

The letters must also be free from marketing materials and must explain clearly that the customer may have suffered financial loss and may be entitled to claim some money back.

Customers must respond to the letters to make a claim for compensation and can do so directly without having to use the service of claims management company.

Banks paid out £1.9bn in compensation last year to people who were mis-sold PPI when they took out loans and credit cards.

The insurance is designed to safeguard repayments if the customer is unable to make them – through illness or redundancy for example – but sales staff were often offered incentives to sell PPI, leading to unethical sales techniques being used.

Consumer were sometimes led to believe that PPI was compulsory, or told that taking out PPI would increase the chance of a loan application being approved.

In some cases PPI was added to the product being purchased without the customer’s knowledge.

Banks are now sending out letters in an effort to deal with customers who may have been mis-sold PPI, but have not yet complained.

Martin Wheatley, the FSA’s managing director said: “By ensuring that firms are clear about the problems they have identified and the potential redress due, we are aiming to prevent people running out of time if they choose to complain.”

Michael Pilgrim, a PPI specialist for claims management company Randall & Vickers, is calling for the Chancellor to set a deadline for banks to pay compensation for PPI mis-selling, in the forthcoming Budget.

A new code of conduct is being launched by the Association of British Insurers (ABI) which should ensure that the sale of annuities is fairer and more transparent.

The new code is designed to make it easier for people to make decisions about their retirement income, including being more confident in using the so-called ‘open market option’ and shop around for the best deal.

A recent report by the National Association of Pension Funds (NAPF) suggested that many people do not realise they are allowed to shop around for an annuity.

Many retirees simply accept the pension offered by the company that has managed their money up to retirement, which is often not the best option.

With the value of annuities falling significantly in recent years, it is vital that people compare the deals on offer, and the code should ensure that people approaching retirement are given the guidance they need to do so.

It is estimated that the way annuities are currently sold is costing half a million retirees each year as much as £1bn in future pension income.

The ABI’s new code requires its member to provide clear advice on
how to shop around for an annuity.

It also requires members to ensure that people are aware of enhanced annuities, which provide a higher pension income to people a shorter life expectancy.

The new guidelines must be implemented by March next year.

Meanwhile there is growing concern that thousands of workers have been wrongly advised to opt out of final salary company pension schemes.

Speaking to The Telegraph, the Financial Services Authority said: “As things stand, there is a high risk that members receive unsuitable advice.”

It is believed that up to 100,000 workers have been offered pension opt-out in the last three years.

The Telegraph suggests that this could potentially cause a £20bn pension mis-selling scandal.

The Financial Services Authority (FSA) has fined Santander £1.5m for failing to explain to customers that some of its investment products were not covered by the Financial Services Compensation Scheme (FSCS).

The FSCS is a financial safety net which pays compensation to customers of financial services firms authorised by the FSA, if the firm itself cannot pay a claim against – if they cease trading, for instance.

The scheme covers deposits, insurance policies, insurance broking and home finance, as well as investment business.

Between 2008 and 2010 Santander sold £2.7 billion of structured investment products which were not fully covered by the FSCS, but failed to tell customers that the cover was limited.

Although investors did not incur any financial loss as a result of the lack of information, the FSA imposed the fine because Santander did not confirm whether the products were covered quickly enough.

Customers began to question whether products were covered in 2008, but despite knowing in June 2009 that its Guaranteed Capital Plus and Guaranteed Growth Plan only had limited FSCS cover, Santander did not update its literature with this information until 2010.

The FSCS cover on these products was limited because they were held by subsidiaries of Santander.

Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said “When firms provide customers with literature about products, the information has to be correct and unambiguous.

“After all, it is there to help people make informed decisions about whether to invest.”

Santander said it was disappointed with the outcome of the investigation but would not challenge the decision.

In related news, the FSCS is currently in the process of sending compensation application forms to around 4,000 private customers of MF Global UK Limited, which appointed administrators in late 2011.

Compensation paid to consumers who were mis-sold Payment Protection Insurance (PPI) reached a record £379m in November, compared with £268m in October.

PPI was routinely sold alongside loans to protect re-payments if the customer fell ill or became unemployed, but many people were sold policies that were invalid because they did not meet the qualifying criteria.

Lenders were under commission for every PPI policy they sold which led to some salespeople misleading customers by telling them that the loan would not be authorised unless PPI was taken out.

Millions of consumers were mis-sold PPI and it is estimated that up to £9bn will be paid out in compensation.

The number of PPI complaints received by the Financial Ombudsman Service (FOS) increased by 10 per cent to 55,907 in the final three months of 2011, compared with the previous quarter.

In November the Financial Services Authority (FSA) and the Office of Fair Trading (OFT) launched a joint consultation on how to prevent the problems associated with PPI being repeated in the replacement products being brought to market.

The consultation closed on 13 January 2012 and specialist Lloyd’s insurer, Jubilee, is pressing for the two agencies to provide regulatory certainty in order to allow the PPI market to grow.

Jubilee’s head of personal lines, Chris Biles, said: “Anything which helps to clarify the responsibilities of both distributor and insurer has to be welcomed.

“But the FSA and OFT must recognise that there is a clear role for both lenders and insurers in helping to ensure that borrowers have access to appropriate ways of reducing the risk of being unable to maintain financial commitments.

“The key will be that any solution is designed to be easily understood and matched to the specific needs of the customer.”

Hedge fund manager David Einhorn and his fund Greenlight Capital were fined 7.2 million pounds ($11.2 million) by the U.K.’s Financial Services Authority, Bloomberg TV’s Dominic Chu reported.

The FSA said that Einhorn’s fund traded stock in Punch Taverns PLC on inside information back in 2009.

According to Sky News’ Mark Kleinman, Greenlight sold shares of the pub and bar operator just three days before Punch Taverns revealed plans to raise £350m from investors. 

Kleinman added that Greenlight had pared back its stake in the company several times before the announcement was made.

Einhorn is known for seeing problems at Lehman Brothers and publicly shorting the stock before the bank folded.

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