Examination of Witnesses (Questions 80-99)|
8 NOVEMBER 2005
Q80 Chairman: You visited 45 places.
Sir Callum McCarthy: Yes.
Q81 Chairman: In the light of that,
in terms of OFT, if the market is not working, then a letter from
this Committee to OFT asking them to look at that would not be
a bad thing?
Sir Callum McCarthy: There is
already a super-complaint in front of OFT and the support of this
Committee would be very important.
Mr Tiner: I was going to add on
this point about commission, that commission levels can be very
high in the way that you have described. That is related to the
kind of incentives that we have seen and referred to in our paper,
to staff who are selling PPI, which would potentially create the
purse incentives in terms of the suitability question, and that
within our Treating Customers Fairly the broader issue of sales
people being incentivised in the right way to do the right thing,
is a key component of this work as well.
Q82 Chairman: There have been suggestions
made that there should be comparative tables for PPI produced.
Would you, after your next round of investigations, consider that?
Sir Callum McCarthy: Yes. I would
hope that just with annuities and life policies and travel insurance,
once you get the separation you actually get the market working
effectively, and that is what we would very much like to see.
We also, as John said, really want to stop elements of mis-selling.
Q83 Chairman: Given that there is
a joint regulatory aspect to the FSA and the OFT, are you satisfied
with the arrangements at the moment with OFT, or can it be taken
Sir Callum McCarthy: We need to
look and see how the OFT would respond to the super-complaint
that has been made to it, and we also need to consider the timing
of that because if it were to take an extended period for investigation
we would want to look and see whether the abuse that we believe
is a problem was going to be controlled, and whether we would
be satisfied to wait until the end of the OFT and Competition
Commission deliberations, and I cannot yet give you the answer
to that, other than to say we are thinking carefully and want
to look at it once we understand what the OFT is doing.
Chairman: Would you keep us informed
Q84 Jim Cousins: Sir Callum, you
have described very clearly the issue of unbundling, that is to
say separating the primary product that is being sold from the
issue of protection of payments in the future and the insurance
on that. You have described that unbundling process as an issue
for the Office of Fair Trading, but surely where we are talking
about primary products that are products regulated by the FSA
regime, surely you could unbundle them right now? That is not
an issue for the OFT, that is an issue for you.
Sir Callum McCarthy: You are quite
right that we could take a regulatory initiative to unbundle these,
and we may choose to do that. The question that we have to think
about is, first of all, what is going to be the response of the
industry to the problems that we have flagged up over the last
months and particularly published our findings on last Friday.
Second, if there is an investigation by the competition authorities
in relation to those practices, should we wait until they have
finished? Because they will do some work which one would hope
would be of value. Those are the questions that we have to weigh
up. I am making clear that we have not yet come to any decision,
but I completely accept you are right, that we could actually
take action ourselves.
Mr Tiner: Could I add a point,
Mr Cousins? As we have said, much of our work so far has shown
that the problem here is much more related to credit cards and
unsecured lending than to mortgages, and of course we do not currently
regulate credit cards, we do not regulate unsecured debt, so we
do not quite have the same access of power, if you like.
Q85 Jim Cousins: Mr Tiner, let us
not muddy the waters here. My question was very specifically on
four primary products, which are part of the Financial Services
Authority regulated product regime, which you could unbundle right
now, and Sir Callum has clearly said that the answer to that question
is, "Yes, we could unbundle right now."
Mr Tiner: In relation to just
those products, yes.
Q86 Chairman: You can understand
the urgency of that. I would like to go on to the issue of claims
handlers. I know you say that you are not responsible for regulating
third parties and to pursue complaints on behalf of consumers,
but there have been concerns about claim handlers. In fact the
FOS state that claim handlers who provided the forms make the
determination, and the ABI in a survey of the second quarter of
2005 looked at this issue. The total complaints were over 137,000
with just over 66,000 upheld, and the success rates for customers
complaining direct was 48% and the success rate for claims handlers
was 46%. Given that the FOS and insurance companies ask for no
more information than complaint handlers companies, then it would
seem as if this is a situation in an unregulated market where
quite a number of companies are making a few bob for themselves,
and then at the end of the day the person losing in itbecause
the same procedures are followed whether they go to a claim handler
or directis the individual who states that they have a
shortfall on their mortgage. That seems a pretty scandalous situation.
Sir Callum McCarthy: We have made
clear, and make clear in our publicity and advice that there is
actually no need for anybody to get advice in making a complaint
and that they can do so by themselves without any problem. What
we are not prepared to do is to say that people should be prevented
from doing that because there are some people who will find it
helpful to get advice on how to formulate a complaint, and the
difficulty is between drawing people's attention to the fact that
they can do it themselves, that there is no disadvantage in doing
it themselves, but not actually saying that the Financial Ombudsman
Scheme will refuse to take issues when they come via complaints
handling firms. I understand that the government generally is
looking at the question of complaints handling and people who
advise on claims, but that is a general issue. The specific position
that we are taking is to try to make it very clear that people
can do it for themselves, but equally to make it clear that if
they choose to get advice they are not going to be debarred from
making a compliant either to the firm or for themselves.
Q87 Chairman: There is provocative
literature out in the market on this for people. Let me give you
an example here, Endowment Justice say, "Can everybody
do it? It is intended that everybody is able to present their
own complaint. But, to do so, you either have to have blind trust
in the system or in-depth legal knowledge and understanding of
the financial services regulation." Absolutely, utterly not
true, you would agree. "The difficulty with handling your
own complaint is that: you have to rely and trust that the financial
services company dealing with your complaint will do it properly,
fairly and in accordance with the law." So a question mark
there against the integrity of the financial services company.
Also, "You have to rely on the FSA to enforce the regulations
quickly when providers breach the rules." Second question
mark against the integrity of yourselves in this instance."
Thirdly, "You have to rely on the FOS (the Financial Ombudsman
Service) to make fair, reasonable and consistent decisions in
accordance with the regulations and believe that they will not
make mistakes or interpret the regulations in a way that is unfair
and disadvantages the consumer. It is a disappointing fact that
consumers cannot rely on any of the above." If I were a consumer
I would be confused, and if I do not know what is happening I
would say, "Jeez, the FSAuseless; the FOS, more useless."
And what am I going to do, go through them? It is the same process
going through with a better claim if you do it direct, as a result
of that. Yet this provocative literature is going through, and
if the figures are to be believed £250 million was made by
claim handlers' companies in the past year, and if we look at
some of them, "Complain to us," they say, and they limit
the deduction to 54% including VAT. If you have a constituent
who has a £5,000 shortfall, that means that £1,700 is
taken off straight away, and other companies, like Endowment Solutions,
say they limit it to 15%do not say if it is VAT. The same
as Sole Investors do. Endowment Justice say it is 17.5% plus VAT,
which is 20% with VAT, and Bonnington Partners say it is 20% plus
VAT, which is 23.5% off an individual's claim. Given that there
is no added value whatsoever in claim handlers doing that, the
ordinary consumer just seems to be losing out enormously, and
surely to goodness whilst it is not regulated there has to be
a view here, Sir Callum, and there has to be something done.
Sir Callum McCarthy: Chairman,
I think I am in violent agreement with you.
Q88 Chairman: That nothing can be
Sir Callum McCarthy: I do not
have legal powers to deal with these people. That is why I welcome
the government tackling thisand I do not think it is confined
to financial servicesand until there is a new initiative
giving statutory powers to either the FSA or to somebody else
I cannot do anything about it other than the things that we are
Q89 Chairman: Would you, as a result
of this Committee meeting this morning, go back and discuss it
with your Chief Executive, senior management and maybe send a
letter to the government or put some policy issue up to encourage
this situation to stop?
Sir Callum McCarthy: Absolutely,
I undertake to do that. I do not think that the government is
in any doubt about our position.
Chairman: I think we need pressure on
this. People are losing out as a result of this. I looked at the
Daily Mail yesterday, and this is on the back page with
the sports, "Endowment shortfall. Big Ben." So a real
authority there. It says, "The clock is ticking, have you
been mis-sold? If you do not claim they win, you will lose."
Pretty powerful stuff, so we need action.
Q90 Mr Todd: You have raised a number
of times during your answers the importance of the FSA communicating
with consumers on a variety of issues. Do you measure how effective
your communications actually are? For example, when you produce
comparative tables which John urged, on payment protection, for
example, have you measured how well used those are?
Sir Callum McCarthy: We measure
hits on our website. We have just embarked on a Naked Facts about
Mortgages programme to try and improve the number of hits on our
website, but it is also quite important to recognise that, for
example, the comparative tables are extensively used by the personal
finance press as a basis for making recommendations. So it not
only affects immediate consumers but some of those important intermediaries.
Q91 Mr Todd: So you measure your
website hits, what does that tell you?
Sir Callum McCarthy: It tells
us which ones are most used
Q92 Mr Todd: I thought you were going
to tell me something quantitive there. I know what hit measuring
Sir Callum McCarthy: I think there
are something like 1,700 a week.
But the point I am making is it is not clear whether
Q93 Mr Todd: Mr Tiner is looking doubtful
Mr Tiner: I am looking it up.
Sir Callum McCarthy: My point
is that it depends whether those 1,700 people are one individual
looking it up for his or her own mortgage or whether it is, as
it were, 1,600 IFAs who were then going to give their advice on
mortgages, or mortgage brokers using the information in a much
bigger way. So it is quite a difficult thing to answer.
Q94 Mr Todd: Bearing in mind what
has been said repeatedly through this morning, which is that the
level of financial knowledge and education of many consumers is
limited, is it not sensible to regularly audit your communications
achieved so that you actually know who you are reaching, who you
are not, what the level of education is you are hitting regularly,
and those you are missing? Is that not really a part of your duty?
And do you do it?
Mr Tiner: I would say we have
done it sporadically, not systematically, which I think is what
you are saying is what we should be doing, and I think you have
a good point there. Particularly as in the last two year we have
doubled again the amount of money we spend on consumer information,
financial capability and so on, it is the sensible thing for us
Q95 Mr Todd: I am sure you can understand
the risk, which is that you may be producing excellent information
for a group of people who are already relatively well informed,
and it is usually supplementary information which makes them better
informed, but it does not really chisel into the mountain of mis-information,
and the kind of thing that John talks about, where you are pitching
at people who really do not understand very much anything about
Mr Tiner: We do understand that
simply putting something on our website does not then inform the
whole of the British public. Where we do have information going
up on to the website which we think is particularly important
to a group of people, we try and work very hard with the media
to point them to it, so that they can refer to it, write about
it, and point their own readership to it so that we get much wider
distribution. For example, on things like precipice bonds and
high income bonds in the past, we have had a very active campaign
in effect through the media to try to get people to come and look
at the issues on our website in terms of what to do if they felt
that they had been mis-sold a precipice bond.
Q96 Mr Todd: You did quite a lot
of work on that and yet a tremendous amount of selling took place
long after you started shouting.
Mr Tiner: Yes, we cannot stop
it all, clearly.
Q97 Mr Todd: The peak sale period
fell after the point when you started shouting warnings.
Mr Tiner: Yes. We had started
shouting warnings quite early, but we could have been louder at
Q98 Mr Todd: So you will be looking
harder at this because, to be honest, the same could be about
to happen with venture capital trusts where you have been indicating
that these are products which really should be bought in a very
highly informed environment, and yet I would hazard a guess that
there will be a lot of people who will be thinking that it seems
to be a very attractive tax free product and let us sweep it up.
Mr Tiner: We have issued our own
warnings on venture capital trusts both to the providers of the
products and to customers again working through the medium of
the relevant information on our website which the media refer
to quite frequently. Again, we cannot stop them buying these trusts
if, having acknowledged all of that, that is what they want to
do. The general point is that we need to be perhaps a little smarter
on how we convert the data we put on our website into the information
that goes into the hands of the population.
Sir Callum McCarthy: I think it
is, if I may say so, a good point to put to us. It is very difficult
to work out what we would have to test.
Q99 Susan Kramer: Following up on
that, I am really concerned with this strategy, as to how are
people going to know both the scope of the advice that they are
getting, how partial it is or how complete it is and also what
protections are in place when they follow that advice. Would you
take a look at that issue in trying to make sure that there is
absolute clarity all along the line, and also that there is some
sense of where the liability goes back to as you look at these
various products because none of this is very clear to anybody.
It is so ambiguous.
Sir Callum McCarthy: I absolutely
undertake that we will continue to worry away at these issues
because I think that they are important issues, and they are important
both ways, so that the consumer should know what protection is
associated with particular forms of advice, and also so that we
do not erect unnecessary obligations on people giving advice which
deters the provision, the sort of basic advice which is so desperately
needed. So it cuts both ways, but, yes, it is an issue that is
we are very conscious of.
3 Note from Witness: The consumer information
section of the FSA's website received, on average, 21,000 visits
per week in October 2005. Back