/ Money

What’s the next financial scandal? Let’s stop it in its tracks

Newspaper against blue background

Some things come in threes: buses, bad luck, BeeGees. Others come round in a steady stream: sushi, airport luggage, financial scandals. So what’s next?

Another financial mis-selling scandal hit the headlines recently as the regulator, the Financial Conduct Authority (FCA), announced a £1.3bn compensation deal for customers mis-sold CPP card protection policies and ID fraud insurance.We’re pleased that the FCA is taking action, but it’s taken a while.

Which? first raised questions about these poor-value policies back in July 2009. In 2011, we submitted evidence of numerous examples of aggressive selling techniques and companies flouting the rules to the FCA’s predecessor, the Financial Standards Authority.

PPI, mortgage endowments and Libor-fixing

Unfortunately, ID fraud insurance mis-selling is just the latest in a long line of financial scandals, including the mis-selling of mortgage endowments, split capital investment trusts, personal pensions and interest-rate swaps, not to forget Libor-fixing.

The dubious honour of biggest scandal goes, of course, to payment protection insurance (PPI). Earlier this month, the total put aside by banks to cover PPI mis-selling hit a staggering £18.8bn, dwarfing even the £12bn personal pension debacle and the £3bn cost of endowment mis-selling.

Sometimes the problem stems from a poorly-designed product, other times the sales and advice process is to blame. Sometimes it’s a case of a company spotting an opportunity to cash in on weaknesses in the regulatory system. Often it’s a combination of all three.

Banks ‘they’re all the same’

The risk is that the seemingly endless stream of mis-selling scandals not only put us out of pocket, but also make us distrust the financial services as a whole. We’ll find ourselves in a difficult situation if people believe that no financial service provider can be trusted and ‘they’re all as bad as each other’. These views will stop us taking out products that could be beneficial, put us off seeking financial advice and finding the best deal.

The banking regulator has the potential to be a real watchdog, rather than a lapdog to the financial services industry. It has the power to stop poor products getting to us rather than having to take retrospective action. In the meantime, though, I fear that we haven’t seen the last in the conveyor belt as banking issues from previous years bubble away under the surface. What do you think will be the next scandal to hit the headlines? Have we really seen the last of them?

Philip Painter says:
2 September 2013

The next scandal will be the lack of independent financial advice caused by the disastrous Retail Distribution Review (RDR) rule changes started by the FSA. It is no longer financially viable for IFAs to advice on, for instance, pensions in many cases. There will be a generation with less or poorer pension provision.

Cash ISA: Transfer times, dropping interest rates forcing people to switch ( thereby making a mountain of transfers which cause the long transfer times).

Annual management fees on Pension, endowments etc how much does it really cost to not do anything with your money year after year

I agree. I have just filled in a cash ISA transfer form and was shocked to see that the new provider wants to carry out the transfer by cheque. This means that I stop earning interest from the date the cheque is issued (while my money remains for a few days with the old provider), and I will receive interest only from when the new provider processes the cheque. They should carry out these transfers by same-day Faster Payments Service. If I lose interest, I will complain to both providers.

Currently the rules state transfers must be completed within 15 days and you should start earning interest on that day regardless of whether or not the funds have arrived.

When I last transferred an ISA the money vanished from the old account and 15 days later appeared in the new one. Losing me a whole 15 days. If that’s not a scandal I don’t know what is.

The thing that gets me is ISA providers will complain that at the busiest times even 15 days is a push , and it might well be, but the reason so many people transfer around the same time is because the providers all drop rates and if they didn’t do that they’d be many fewer transfers

As a recent short series in the Money Box slot on Radio 4 explained, the financial consumer is paying for the City is myriad ways, including 16 different ways to take money out of your ISA. David Pitt Watson, who analysed pensions in the UK and Holland, concluded that after contributing to a pension over a working life time a Dutch pensioner will be 50% better off than his UK counterpart because of the charges, fees, commissions and margins which are creamed off by the institutions here. High time Which?, if it wants to claim to be a consumer champion, started serious campaigning on this – the press won’t, because it relies on financial advertising.

Gerard Phelan says:
2 September 2013

Although we might want, or might even expect, that financial organisations will reward loyalty with consistent rates, be they of interest on savings or fees for insurance, the rates and fees are published and visible, giving us the opportunity to look around for alternatives. Thus I cannot see that such matters can ever become a scandal.

The opportunity for scandals is where the vendor has information we do not, or which we are not able to access. For example the likelihood of successful claims on PPI and CPI insurance and the overall profitability of the product – which is another measure of the fairness to the customer.

Some travel insurances have unexpected limitations in the small print, which few of us are able to assess. Even here though, organisations like Which? provide ‘Best Buy’ lists based on proper assessment of the small print, so again we do have some opportunities for making informed choices.

( A similar comment might be possible regarding claiming on Health insurance. )

Returning to investments, I think the real ‘fun’ will be seen in/by 2016, when all renewal commission is banned and the operating costs of investment companies, like Henderson and fund management platforms like Funds Network from Fidelity and Vantage from Hargreaves Lansdown have to be explicitly shown and paid for! The costs we pay will then become all too visible for some (expensive) brokers and fund managers, but at least we the customer will at last have the information on which to make better decisions.

My vote goes to Legal Expenses Insurance. Yet another financial product that pretends to offer much and delivers little if anything. Even buying Which? recommended home insurance from a trusted brand offers no guarantee that you won’t be ripped off. After the insurer declined my claim I discovered they had concealed material information supporting it. The FOS upheld my complaint but try getting the insurer or their solicitors to explain their conduct. A wall of silence! There you go Which?, the consumer champion, get your teeth into this one.

The amounts of compensation required to give customers proper redress are truly staggering. Because the profits made out of mis-selling have been spent [on bonuses, corporate headquarters, and excessive dividends, etc] the money for the refunds is coming out of provisions made from reserves and from operating surpluses. Reserves must be replenished. Financial institutions have to remain profitable [nobody would use a bank that wasn’t] and shareholders [mainly pension funds] have to have their dividends. In a contest between the the customer, the employees, and cost savings as the source of compensation, my money is on the customer having to cough up yet again.

Oh dear, the OFT is to look into pension fees. I wonder if they subscribe to Which Convo ? hehe

“Pension fees will be legally capped in a move that will prevent workers from being “fleeced” of hundreds of thousands of pounds, ministers will announce today. ” Taken from the telegraph website

Lets hope they also decide these scoundrels should pay people some of their money back.

For me it would have to be: Insurance Companies like ST ANDREW’S INSURANCE T/A HALIFAX INSURANCE Who decide to just CANCEL your claim to cover your monthly mortgage repayments when you have been placed on SICK due to Mental illness & won’t acknowledge your attempts of contact or that you have supplied the correct evidence to continue your claim & in a last attempt of desparation contact The Financial Ombudsmen who agree that the correct evidence was supplied & the insurance needs to be pay the remaining months of the claim and £200 distress payment!! Meanwhile your Mortgage Company/HALIFAX BANK have gone legal and litigation are constantly threatening repossession, but with the help of Legal Aid manage to fight off 3 Court Hearing Dates, then bizarrely once the insurance agree to pay, Halifax play dirty and go to Court (by confirming the wrong date over the phone plus their solicitors didn’t inform Legal Aid the date was wrong) and Halifax went to court and were awarded possession!!!
** this is still going on & eaten away at my health … but not giving in, so please any advice or publicity would be appreciated, thank you