Calling a spade an operational failing
One story this week betrayed the lengths some firms will go to save face when they are exposed for treating their customers shabbily.
On Tuesday we reported on the £610,000 fine dished out to GE Capital Bank for failing to stick to Financial Services Authority rules on the sale of payment protection insurance.
The fine was significant because GECB is behind the card protection policies that are sold alongside store cards from some of the High Streets’ biggest names. Asda, BHS, and House of Fraser are among those that sell GECB card protection policies with their store cards.
The fine was announced in an FSA statement and quickly seized upon by the media.
In it, the FSA explained that GECB had not provided important information that customers needed in order to decide if they should take the card protection.
Reports, including ours, identified that the failure to disclose this information could lead to mis-selling of these insurance polices and that card holders might be entitled to compensation.
At this point, the GECB counter-attack swung into action. A note was quickly sent out to offending journalists insisting that ‘the FSA news release and its Final Notice makes it clear that the fine relates to non-compliance. At no point do they say we have mis-sold policies.’
You can understand why GECB would want to distance themselves as far as possible from accusations of mis-selling. ‘Mis-selling’ is the Indian sign for financial companies – the buzzword applied to faceless corporations that use underhand sales techniques to push costly products onto the public.
So why were so many in the press quick to brand this a case of mis-selling? Shouldn’t we have stuck to the line favoured by GECB that the offence here was ‘operational failings…regarding compliance with new regulations governing the sale of insurance’?
Well, the FSA took its decision to fine GECB after investigating how policies were sold.
The Final Notice issued by the FSA explains how retail assistants - that’s the staff behind the counter in stores like Topshop and Miss Selfridge – were paid incentives to sell these insurance policies. Incentives were paid whether sales were within the rules or not.
The sales assistants were supposed to draw customers’ attention to important policy details that would help them decide if the insurance was for them or not. GECB’s own assessment of this process in 2005 showed that between 57% and 76% of sales assistants were not doing this.
That year there were 5000 complaints about card protection sales.
But not all policies were sold face-to-face by staff inside the stores. About 5% of sales were made over the phone by GECB staff who would ring people who had taken store cards but had chosen not to take the insurance.
These calls were monitored by GECB for 25 weeks. Of 2,517 calls monitored, 1,761, or 70%, failed to stick to the firms’ own rules for selling the insurance. In 13 of the 25 weeks the failure rate was more than 90%.
The FSA themselves listened to 196 recorded sales calls. Every one of the 196 breached FSA rules for selling PPI, and most breached the rules more than once. Telesales staff provided false information – for example that the insurance had only four exclusions when in fact there were 12 – and some failed to get explicit consent from the customer before the insurance was applied.
GECB sold around 850,000 polices according to these practices. But please remember, at no point did the FSA say they have mis-sold polices.
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