Payment Protection Insurance Violations Cost UK’s HFC Bank $2.136 Billion
The UK’s Financial Services Authority (FSA) has fined HFC Bank Ltd., a division of HSBC, a record £1.085 billion ($2.136 billion) for “failing to take reasonable care to ensure that the advice it gave customers to buy Payment Protection Insurance (PPI) was suitable, and for failing to have adequate systems and controls for the sale of PPI.”
The FSA’s bulletin cited HFC for not requiring “advisers in its branch network to gather sufficient information about customers’ circumstances and take sufficient information into account when considering whether PPI was suitable,” between January 2005 to May 2007.
“HFC also did not require advisers to explain fully why they recommended a particular policy or identify to customers any demands and needs which the policy would not meet,” the FSA added. “These and other failings meant that HFC put its customers at an unacceptable risk of being sold PPI when it was not suitable for them.”
FSA Director of Enforcement Margaret Cole warned: “We are determined to see much better practice in the PPI market. We announced in September that we would be imposing higher fines for serious failings in the retail market including against firms who fall short in relation to PPI. The fine against HFC – the biggest PPI fine to date and first since our September announcement – is evidence of our determination in this area.”
She added that “HFC’s failings put its customers at risk of buying unsuitable protection insurance and the financial impact on them of unsuitable advice was likely to be significant.”
In addition, the FSA found that as a result of HFC’s inadequate systems and controls:
— it did not have effective systems to train and monitor its staff and failed to ensure that its procedures for monitoring sales staff effectively identified and investigated potentially unsuitable sales;
— management information provided to HFC’s senior management was not sufficient to enable them to identify problems with the sale of PPI; and
— its records were not sufficient to demonstrate its sales were suitable.
HFC operated 136 branches as of May 2007 that provided secured and unsecured loans. It sells PPI on an “advised basis” in connection with those loans. “Between January 2005 and May 2007 HFC sold PPI with 75 percent of the loans it provided, totaling 163,000 PPI policies (of which 124,000 were single premium policies sold with unsecured loans),” the FSA’s bulletin explained.
The regulator also pointed out that “HFC’s customers largely had credit ratings, which resulted in them having limited access to consumer finance. Over this period HFC traded under the ‘Household Bank’ and ‘Beneficial Finance’ names.”
The fine could have been even more expensive. The FSA explained that, as HFC had “agreed to implement changes to its sales processes,” as well as contacting customers and making other improvements, it received a 30 percent discount on the original £1.55 billion ($3.056 billion) fine.
“The size of the fine reflects the FSA’s announcement set out in its PPI thematic update in September 2007 that it would seek to increase the level of fines in PPI cases where this is warranted by the nature, seriousness and impact of the breach and by the likely impact on deterrence,” the bulletin concluded.
Source: Financial Services Authority – http://www.fsa.gov.uk