MR HECTOR SANTS, MR DAN WATERS AND MS LESLEY TITCOMB

15 DECEMBER 2008

  Q98 Chairman: Mr Sants, welcome to the Committee. We do appreciate that Lord Turner is in Hong Kong today at the Financial Stability Forum, and it was with that in mind that I was quite happy to go ahead with our rearranged session on that, but you are due to come back in March and we will have a further range of questions, particularly for Lord Turner, on these issues. Can I start with payment protection insurance. Five years ago we referred this matter to yourselves and the OFT and the Competition Commission and we are still dizzying around. We have a fine on Egg at the moment. What has happened? Can we not get it sorted out?

  Mr Sants: I think it is very fair to say that progress by firms in sorting out that key issue has been disappointing. We made that clear. We have a very determined enforcement programme under way. We have significantly increased our fining in that area and if I could pick up on one of the earlier comments, of course, the cost to firms is not just in the fine. Indeed, you would expect the fine not to be the greatest cost that they in fact bear because we are also asking them to provide redress, and our expectation in many cases is that that redress, the compensation to consumers, will be multiples of the fine. So just looking at the fine is not in itself the best way to judge the deterrent effect being delivered. However, we do agree that firms have been slow to alter their behaviour and we are determined to see that changed. I believe that message has now been put over and that we have seen significant changes in firms' behaviour. Dan, you may want to comment on some of the detailed changes.

  Mr Waters: Thank you. Yes, we have done a number of rounds of thematic work, as the Chairman is probably unaware. Some improvements have been made but the work done by the Competition Commission makes it pretty clear that there are some fundamental structural problems in this market and, frankly, the tools we have to deploy have not been able to crack the backbone of the problem. We have nonetheless, as Hector has said, fined something like 20 firms a total of about £12 million. We have said that we are escalating current regulatory work with firms. A number of firms have voluntarily agreed to stop selling single premium PPI. So I think it is fair to say the writing is on the wall. We just need to get on with further improvements.

  Q99  Chairman: Let me just give you my personal example. I went to my bank and got a short-term loan a couple of years ago. I told them at the time that PPI is not suitable for me but I was a recipient of eight separate letters from the bank over the next three or four weeks impressing on me that I had really made a mistake in the first instance. That, to me, is not far away from harassment. It is a well-respected bank and I do not want to name it and shame it here.

  Mr Waters: That kind of behaviour I think was probably not untypical a couple of years ago. We think some things in that respect have improved in terms of the banks and other sellers of PPI not actually forcing or pretending to tell people that it is required. That has improved but other issues have not.

  Mr Sants: The general point, Chairman, is well taken. There is no question that effective deterrence requires swift and effective action and a higher level of fines and sanctions than we have historically, if you go back over the full period you are alluding to, deployed but I think our actions in the last 12 months in respect of those 20 firms shows that we are taking a much tougher approach.