GE Capital Bank (GECB) has been fined by the Financial Services Authority (FSA) a record amount of £610K, for failing adequately to protect customers from being sold insurance products that they might not need.
GECB was found to have insufficient safeguards against mis-selling payment protection insurance (PPI).
This is the largest PPI fine that the FSA has imposed to date, more are expected to be announced in the coming weeks.
GECB has said that it will now honour any PPI claims made by customers from 2005 onwards, even if they go against contract exclusion clauses.
Critics claim that the product is overpriced, difficult to claim on and mis-sold.
GECB's main business is providing credit finance through branded store cards, credit cards and sales finance. Its clients include Laura Ashley, Mothercare, BHS and Halfords.
Therefore it has somewhat of a captive market for selling the PPI add on.
In 2005 over 850,000 insurance policies, included PPI, were sold on its behalf to consumers.
In spite of the fact that the FSA had noted that GECB had failed to review and amend procedures for selling insurance, despite its own evidence of widespread non-compliant selling practices.
Margaret Cole, director of enforcement at the FSA, said:
"Millions of people take out store cards every year. They need to know that PPI is almost always optional and should consider whether they need it before signing up.
Our focus on payment-protection insurance will remain very high this year. We are determined to see significantly better practice in PPI sales, and will crack down where firms fail."
The fine against GECB was going to be £870K. However, it qualified for a 30% discount by agreeing to settle early.
GE Capital Bank said:
"The main finding of the FSA relates to GECB policies sold in stores by sales staff.
GECB designed the sales procedure but failed, in light of emerging evidence, to fully review, amend and then effectively operate it.
As a result, relevant information about the insurance product was not provided to some customers at the time of sale.
In certain cases, the FSA found that staff had not followed the correct sales procedure by drawing customers' attention to the importance of reading the policy's summary of cover. GECB fully accepts responsibility for how the policies are sold.
GECB is continuing to take steps to ensure that no customer has lost out financially, and is honouring claims that would otherwise be rejected because of an exclusion."
In the short term, this shot across the bows of the financial services industry may be seen as a victory for the consumer. However, in the long term, you can be assured that the financial services industry will find other ways to separate the consumer from his/her money.