January 18, 2008 | posted by Pam Atherton in Banking, Insurance |

News that HFC bank, a UK subsidiary of HSBC’s US operations, has been fined £1.1m for failures in its selling of payment protection insurance (PPI) makes me wonder why we are not hearing about more such fines from the City regulator.

In a mystery shopping exercise I conducted last year of half a dozen major high street banks in the City of London, when asking for a quotation for a £5,000 personal loan, every single bank automatically gave me quotation including PPI. It was only on request that I received a quote without the insurance.

The same tends to apply online, where the majority of quotations have PPI included as the default option.

The difference between a loan with, and without PPI, can be as much as 40 per cent, if the insurance is added to the cost of the loan – a pernicious practice still employed by some lenders, according to the Financial Ombudsman Service.

This is a staggering amount for something you haven’t asked for and may not even be eligible for. None of the banks asked me about my employment status and whether I was self employed, a seasonal or contract worker – which would have precluded me from claiming on the all the policies in question.

But perhaps the message is finally getting through to consumers that they are being royally ripped off, in many cases, with these policies. The Financial Ombudsman Service says it has seen an upsurge in complaints – 5,000 since April 2007, with 970 in December 2007 alone, and that PPI is attracting more complaints than any other area of financial services.

Significantly, the FSA is upholding 80 per cent of complaints in favour of the consumer, so more fines must surely be imminent.

But what the FSA really needs is the power to name and shame the companies generating the highest volume of complaints, along with the percentage of cases upheld in favour of the customer. At the moment, the FSA is not allowed to do this, making a nonsense of its regulatory work.

Regulatory fines can be paid and forgetten about quickly, whereas reputational damage is far more effective as a deterrent to ongoing abusive behaviour. I can only hope that Lord Hunt, who is currently writing a report on this very issue, will recommend the naming and shaming of errant companies. Such a proposal can’t be implemented too soon.