As the FOS extends open season
on PPI refund claims, Claire Hack examines the potential
repercussions for the world of motor dealers.
Go deeper with GlobalData
An extension to the deadline for
filing complaints about ‘mis-sold’ payment protection insurance
(PPI) means motor dealerships offering point of sale finance face
administrative and legal burdens, as well as the possibility of
hefty payouts.
The latest threat to dealerships
came to light at the end of May, when the Financial Services
Authority (FSA) announced an extension of the six-month deadline
for consumers to go to the Financial Ombudsman Service (FOS),
should initial PPI complaints be turned down.
Those whose complaints were
rejected between 28 November 2009 and 28 April 2010 now have until
27 October to go to the FOS to seek recompense.
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By GlobalDataIt has been reported that
complaints about mis-sold PPI accounted for 30% of all new claims
to the FOS in 2009-10, as people sought to claim refunds worth
thousands of pounds from sellers.
The insurance, intended to cover
repayments on a wide range of credit products if a customer cannot
work, was also the subject of a campaign by Which?, the
consumer watchdog.
Which? stated on its
website: “PPI is often mis-sold which means you might spend a lot
of money on expensive insurance you will never be able to claim
on”, and added it has been “speaking out about the mis-selling of
PPI for many years”.
If found to be at fault, sellers –
especially those offering single-premium policies heavily
criticised by the FSA – could find themselves forced to repay not
only commission earned on the deal but the whole premium.
According to Des Porter, owner and
MD of Radcliffe-based Concept Car Credit, it is the smaller
dealerships selling large volumes of PPI alongside finance
agreements that will suffer.
Porter added: “Even companies that
have followed the guidance recommended by [the FLA] appear to have
no protection, simply because the FOS is upholding the majority of
complaints. It is potentially putting hundreds of businesses in
jeopardy.”
When a complaint is referred to the
FOS, Porter said, companies are automatically hit with a £500
charge, irrespective of the outcome. He also said, although Concept
has FSA endorsed sales procedures and comprehensive signed
documentation in place, defending these claims is hugely
time-consuming, and most of his time is now taken up with dealing
with complaints about PPI.
“For the last nine months, I have
done nothing but deal with solicitors, claims companies and the
FOS,” Porter said.
And little protection is offered by
finance companies, he said, as they often try to pass
responsibility to dealerships as the sellers of PPI – despite
selling it alongside their financial products.
Porter said: “They are taking the
view that if they did not sell it themselves, they will just pass
it off to the dealership, even though it was the finance company’s
product, pricing and documentation used to complete the sale and it
is the finance company who has received the benefit of the
customer’s monthly premiums. They are compounding the problem.”
Not all funders are behaving the
same way, however, Porter said. Lloyds TSB subsidiary Black Horse
is one of them.
“They [Black Horse] appear to be
taking a more supportive stance, stating they will refund premiums
paid by the customer should a genuine complaint be upheld,” Porter
said.
However, according to Paul Bentley,
group F&I director at Lookers Plc, point-of-sale lenders have
not been as reliant on PPI profits as banks, many of which have
historically used the product to subsidise the undercutting of
dealer-offered rates.
“No surprise then that there have
been very few claims within motor finance compared to the banking
sector” Bentley said. “Lookers has seen negligible successful
claims, testament to our open approach and our ‘customers for life’
ethos.”
The greatest potential risk for the
industry seems to be the wave of TV, radio and internet
advertisements for companies offering ‘no win, no fee’ claims
services for mis-sold PPI, which could push the cost to dealers
higher, Bentley said.
“The extension [to the deadline for
FOS complaints] gives more opportunity for ‘reclaim’ companies to
pursue our lenders for reimbursement,” Bentley added.
Porter agreed, and said: “A
customer does not suddenly think, ‘I was mis-sold that’. It is
being driven by these adverts in newspapers, on the radio and on
TV. Some companies are sending text messages, cold calling or even
door-stepping people – practices which have been outlawed by the
Ministry of Justice, who licence claims companies, but which are
still taking place.”
It is thought tens of thousands
more people could have their complaints upheld once they are
referred to the FOS, meaning huge sums may be reclaimed.
A spokeswoman for the service
admitted that, at the moment, a high proportion of complaints about
PPI are being upheld, but added each case is assessed individually
and encouraged those with concerns about fairness to contact the
FOS.
The FSA is expected to have a new set of industry rules on PPI
in place by the end of the summer.
