Financial Misselling Throughout The Years

HIGH RISK BONDS:Otherwise known as 'Precipice' Bonds or 'high income' bonds which originally surfaced around 2000. Lloyds TSB again faced a substantial compensation bill of £98 million, 44% of the policies sold being unsuitable for those individuals. The FSA also fined Lloyds TSB £1.9 million in 2003. The product was designed by the Scottish Widows Group who were acquired by Lloyds TSB in March 2000. In total, 51,00 policies were sold. In 2004 the FSA also fined Capita Trust (formerly Royal & Sun Alliance Trust Company Ltd) £300,000 and compensation to customers was put at around £3.5million. The marketing of precipice bonds potentially placed a significant number of customers at risk of loss. Higher risk complex products should be promoted with care. Reasonable steps to ensure consumers understood the nature of the risks involved in precipice bonds were not taken.

ENDOWMENTS:Perhaps along with pensions the most widely recognised of mis-selling issues. Once again Lloyds TSB was fined a record £1million in December 2002 by the FSA with the bank setting aside £165 million to compensate between 42,000 and 46,000 policy holders (averaging £4000 per policyholder). The mis-sold endowment mortgages occurred between 1995 and 1999. As well as the Abbey Life arm of Lloyds TSB also involved were other providers identified by the FSA such as Royal London Group, Royal Scottish Assurance (part of RBS), Scottish Amicable, Royal and Sun Alliance and Winterhur. An estimated 430,000 home buyers were in receipt of a total of £1bn in compensation. In June 2005, the Financial Ombudsman Service (FOS) revealed it was receiving 1,300 endowment mis-selling claims a week. Widespread unsuitable recommendations of mortgage endowments were made to unsuspecting consumers, again this advice being driven by large commissions.

MORTGAGE MIS SELLING:The most recent case of mis-selling concerns a precedent involving mortgage mis-selling. The issue concerned a housing association tenant, who had suffered the Trauma of repossession. A valuable promise of a rent fixed for life was in place. However, a mortgage adviser persuaded him to buy the property and failed to consider the consequences when the discounted mortgage rate ended. albeit recent, could well be the tip of a very large iceberg. The associated facets of regulated mortgages will no doubt prompt a flurry of activity within self certification and the more vulnerable borrowers. Council right to buy tenants have always been heavily canvassed. The Mortgage Code of Business along with The Financial Services act is there to protect consumers.

CREDIT CARD CHARGES:In 2006 The Office of Fair Trading advised that credit card default charges were unfair and that these charges had generally been set at a significantly higher level than is legally fair. These charges had netted in excess of £300 million a year. Where credit card default charges are set at more than £12, the OFT will presume that they are unfair. A default charge is not fair simply because it is below £12. A default charge should only be used to recover certain limited administrative costs. Card issuers were required to confirm their response to the OFT statement by 31 May 2006 in response to fair and appropriate charge. A fair default charge should not exceed a reasonable estimate of certain limited administrative costs which the credit card issuer reasonably expects to incur as a result of default.