With the drop in interest income from loans, there is increased pressure on lenders to generate non-interest income such as insurance commissions.
The UK Financial Services Authority (FSA) has fined Alliance & Leicester Plc (A&L) £7 million for serious failings in its telephone sales of payment protection insurance (PPI).
For three years from January 2005 to December 2007 A&L sold approximately 210,000 PPI policies to customers seeking a personal loan at an average price of £1,265, but there was a general failure by advisers to give customers details of the cost of PPI. In addition A&L sought to find reasons to sell PPI without properly considering what customers needed.
A&L did not make it sufficiently clear that PPI was optional and it trained its staff to put pressure on customers where they queried the inclusion of PPI in their quotation or challenged advisers’ recommendations.
These failings resulted in unacceptable levels of non-compliant sales and a high risk of unsuitable sales over the three year period.