Out-Law News 1 min. read

Mortgage PPI industry agrees to £60 million refund programme


Consumers hit by increases in the premiums they pay for mortgage payment protection insurance (MPPI) could receive a refund under a new industry-wide agreement with the regulator.

Around one million policyholders are likely to be affected, with the total refund payout expected to be about £60 million.

People buy MPPI to protect their mortgage repayments in case of redundancy, accident or illness. But during the current economic recession, some providers have unilaterally increased the premiums payable and/or reduced the cover under existing policies.

In many cases, the provider's right to change the premium or vary policy terms was not properly disclosed to consumers when they bought the policy. Nor were consumers clearly told that they had the right to cancel. 

The Financial Services Authority (FSA), the Association of British Insurers, the British Bankers Association, the Building Societies Association and the Council of Mortgage Lenders have now agreed on a package of measures intended to restore disadvantaged consumers to the position they were in before the start of this year.

Under the agreement, mortgage lenders and insurers will work together to review the terms and conditions of all their MPPI policies and amend them where necessary to ensure that all new policyholders are made aware of the circumstances in which firms have the right to vary premiums and cover.

In the meantime, firms will refund any increases in premium and reverse any reductions in cover imposed on all existing or past MPPI policyholders during 2009. Refunds are to be made as soon as practicable, but should all be completed by 30th June 2010.

Firms will also offer to reinstate cover for consumers who cancelled their policy within two months of the change in premium or cover. And they will not impose any further changes on their MPPI customers for at least the remainder of the year.

All affected customers will be contacted individually by their mortgage lender or insurer to let them know what the changes are and how their policy will work in the future.

Last week, the FSA unveiled new guidelines on handling complaints about PPI sales and calculating appropriate redress. It has now confirmed that MPPI complaints that relate solely to the issues covered by this new agreement will be specifically excluded from the guidance when the final rules are published at the end of this year.

The FSA says it is also discussing with the industry whether complaints about regular premium MPPI should also be excluded. 

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