The Financial Services Authority announces a temporary rule to give customers who recently made a complaint about their purchase of a Payment Protection Insurance policy more time in which to refer their complaint to the Financial Ombudsman Service.

The temporary rule, which suspends the existing six month time limit for referring complaints to the Ombudsman, will come into effect from today and run for five months, until 27 October 2010.

The rule applies to recent PPI complainants who have already been sent a final response from a firm between the dates of 28 November 2009 and 28 April 2010 inclusive.

This action has been taken to ensure recent PPI complainants are not disadvantaged by running out of time to refer their complaint to the Ombudsman while the FSA works to resolve a long term solution to ensure customers are treated consistently and fairly when complaining about the sale of a PPI policy, or when buying a new one.

The Queen’s Speech was delivered at 11.30 today as part of the State Opening of Parliament.

Her Majesty said:

“The first priority is to reduce the deficit and restore economic growth.

“Action will be taken to accelerate the reduction of the structural budget deficit. A new Office for Budget Responsibility will provide confidence in the management of the public finances.

“The tax and benefits system will be made fairer and simpler. Changes to National Insurance will safeguard jobs and support the economy. People will be supported into work with sanctions for those who refuse available jobs and the timetable for increasing the State Pension Age will be reviewed.

“Legislation will reform financial services regulation to learn from the financial crisis and to make fair and transparent payments to Equitable Life policy holders.

Responding to the Queen’s Speech, Kerrie Kelly the Director General of the ABI, said:

“This highly significant Queen’s Speech will profoundly impact the way financial services are regulated and used by consumers. The insurance industry stands ready to do its part to assist the Government in ensuring that the country is financially resilient and that people are encouraged and assisted to plan and save for their financial future.

“It is also crucial that the UK remains a competitive place to do business. Reforms to the banking sector should not fetter the insurance sector, which was not part of the problem for financial services and the broader economy and whose continued success is vital to the recovery and future strength of the UK.”

Stephen Sklaroff, FLA Director General, said:

“The retail credit industry has seen an avalanche of new consumer protection regulation in recent months, much of which has yet to bed down. Further moves – including last week’s suggestion of possible interest rate caps on cards and a new cooling-off period – would gold-plate recent EU regulations and risk a further contraction in the retail credit market at an already difficult time for customers.

“We will be seeking clarification of the Government’s plans soon as possible.”

Renters’ inability to get onto the housing ladder continues to put pressure on the rented sector, with more tenants forecasting a resultant rise in rents, reveal Rightmove.

40% expect rents to be higher in 12 months’ time, a significant increase on the 27% who forecast rises in Q2 2009.

Miles Shipside, commercial director at Rightmove, comments:

“Tenants are as close to the coal face as you can get, and their growing view is that rents are on the way up. With tenants staying in properties longer, and fewer landlords expanding their portfolios, supply is being outstripped by demand in many areas and higher rents are the likely outcome. Tenants’ sentiments in this survey are spot on.”

Our survey also reveals that the movement from the rental sector into owner occupation is at a virtual standstill. The Rightmove Consumer Rental Forecast a year ago recorded 58% of those surveyed stating they would like to buy but could not afford to, compared to 59% now.

On a regional level, the South East (64.2%) is most affected by affordability issues and the West Midlands (53.5%) the least.

Miles Shipside adds:

“The on-going mortgage famine has meant a consistent demand by lenders for substantial deposits over the last year and there is a strong correlation between this and the frustrations of would-be first-time buyers unable to get on the ladder. It is unlikely these figures will change until lenders can access much more wholesale funding, or potential borrowers can save up the bigger deposits required.”

One positive effect of the likely increase in rents is that the improved returns on landlords’ property investment portfolios, could lead to them buying more. While finance remains restricted in the buy-to-let sector, higher rents could persuade more lenders that investing in professional landlords is now a safer bet.

Shipside continues:

“Professional landlords are canny investors, and will be assessing what returns they can earn in property versus other investments. With cash in the bank earning low returns, this forecast rise in rents could drag more landlords in.

“They are badly needed to help satisfy growing rental demand, but are likely to be sitting on their hands at the moment till there is greater clarity on the new Governments Capital Gains Tax proposals.”

The new Capital Gains Tax proposals present an interesting dilemma for the new Coalition Government. With a pressing need to address the record deficit, there is widespread speculation that the existing flat rate of tax on gains on non-business assets will be increased and brought closer in line with higher rates of income tax. Such changes will not be helpful to the health of the rental sector.

Shipside summarises:

“At a time when we are heavily reliant upon the rental sector to satisfy the nation’s housing needs, the likely changes to Capital Gains Tax rates will seem like pretty bitter tasting medicine to many existing landlords. It will also look like a pill that many would-be landlords will be unwilling to swallow, at a time when rental returns are looking more positive.”

In recent years, we have seen a massive financial meltdown due to over-lending, over-borrowing and poor regulation say Cameron & Clegg in The Coalition: a Programme for Government, which sets out the Government’s plans for the next five years.

BANKING

The Government believes that the current system of financial regulation is fundamentally flawed and needs to be replaced with a framework that promotes responsible and sustainable banking, where regulators have greater powers to curb unsustainable lending practices and we take action to promote more competition in the banking sector.

In addition, we recognise that much more needs to be done to protect taxpayers from financial malpractice and to help the public manage their own debts.

- We will reform the banking system to avoid a repeat of the financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs.

- We will introduce a banking levy and seek a detailed agreement on implementation.

- We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.

- We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry.

- We will develop effective proposals to ensure the flow of credit to viable SMEs. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks.

- We will take steps to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this will take time to get right, the commission will be given an initial time frame of one year to report.

- We will reform the regulatory system to avoid a repeat of the financial crisis. We will bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.

- We rule out joining or preparing to join the European Single Currency for the duration of this agreement.

- We will work with the Bank of England to investigate how the process of including housing costs in the CPI measure of inflation can be accelerated.

- We will create Britain’s first free national financial advice service, which will be funded in full from a new social responsibility levy on the financial services sector.

- We take white collar crime as seriously as other crime, so we will create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and Office of Fair Trading.
 

The Competition Commission (CC) has provisionally decided that consumers will benefit from the introduction of a point-of-sale prohibition for all forms of payment protection insurance (PPI), with the exception of retail PPI.

The point-of-sale prohibition would stop the completion of sales of PPI during the sale of the associated credit product such as a personal loan. It was one of a package of measures the CC planned to introduce following its investigation into PPI, which concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers.

The report and in particular the proposed point-of-sale prohibition were the subject of a legal challenge last year to the Competition Appeal Tribunal (CAT) by Barclays, supported by Lloyds Banking Group and Shop Direct Group Financial Services Ltd.

Whilst upholding the CC’s conclusions as to the competition problems in this market, the CAT ruled that it must in particular consider further the role and importance of a potential drawback to the prohibition, namely that it might inconvenience customers.

Since then, the CC has carried out a detailed analysis of the likely effects of such a prohibition including undertaking customer surveys, and an assessment of parties’ internal documents and of various experiments looking at the possible impact of splitting the sales processes of credit and PPI.

In its provisional decision published today, the CC has concluded that the benefits of a package of remedies including the prohibition, by introducing greater competition and choice and lower prices to the market, will outweigh the disadvantages, in particular the potential inconvenience to some customers.

The exception is retail PPI, where it is not clear to the CC, from the evidence presented so far and from a new survey of retail PPI customers, whether the advantages of introducing the prohibition alongside other measures would outweigh the disadvantages. It is inviting comments on whether alternative remedies would be more effective or would deliver equivalent benefits at less cost.

The CC has also assessed changes in PPI markets since it published its report in January 2009 and provisionally concluded that despite the effects of the economic climate and regulatory action, the underlying problems identified remain firmly in place.

Peter Davis, Inquiry Chairman and CC Deputy Chairman, said:

“Following the legal challenge at the CAT, we’ve done an enormous amount of additional work to examine in further detail whether the package of remedies we’re proposing including the point-of-sale prohibition will provide an effective and proportionate way of tackling the serious problems that still exist with PPI.

“We found that many customers would place very significant value on being given the time and space to choose the right PPI product-or indeed to decide that PPI is not right for them. We also found that a significant number of customers appreciate the convenience of buying PPI instantly at the point of sale of credit.

“Overall we concluded that PPI providers are overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale.”

All customers of course will appreciate the lower prices for PPI and the greater choice we expect to result from more competitive PPI markets.

Obviously the financial services sector has experienced some significant changes since our initial report. We looked at the effect of the relevant aspects of those changes on the PPI market and came to the view that, whilst the financial crisis and recession have certainly had an effect on providers’ sales, they haven’t altered fundamental competition problems.

PPI customers currently have little choice and prices are high because competition is very limited. It is notable that even in the depths of the recession following the financial crisis we found that the economic profits of PPI distributors remained significant.

PPI covers repayments on credit products if the borrower is unable to make repayments due to accident, sickness, unemployment or (in many cases) death. PPI is sold to cover a variety of financial products, but over 90 per cent of PPI sold in the UK is either unsecured personal loan PPI, credit card PPI, mortgage PPI or secured loan PPI.

In its 2009 report, the CC stated that the vast majority of the UK’s more than 12 million PPI policies are sold at the same time as a consumer takes out a loan, credit card or other type of credit.

The CC found that many consumers are unaware that they can buy PPI from other providers, rarely shop around to compare prices and terms and conditions of PPI policies, and rarely switch PPI providers. The resulting ‘point-of-sale’ advantage makes it difficult for other PPI providers to reach credit providers’ customers and in the absence of such competitive pressure, consumers are charged high prices.

During the investigation, the CC liaised closely with the industry regulator, the FSA, which takes the lead on regulating sales practices and tackling mis-selling, as well as the Financial Ombudsman Service, which deals with consumer disputes.

The CC’s focus has been on examining whether there is effective competition in the market as a whole.

The CC will now invite comments on its provisional decision before publishing its final verdict in July. If it upholds its provisional decision, it will move to introduce the full package of measures as swiftly as possible.

The result of this week’s general election in the UK is crippling the pound and the political parties sharing power in the expected hung parliament must come up with a plan to salvage the country’s economic recovery, it has been suggested by Travelex.

Head of the UK trading desk at the firm Mark Bolsom noted that indecision by the government will cost the economy dearly and cause sterling to decrease further in value.

He highlighted the “spectre of political uncertainty” as being a key factor in the negative trends being seen.

Mr Bolsom remarked: “A hung parliament really is the worst possible result for the pound and foreign exchange markets are very volatile this morning.”

The finance expert explained that the money markets are worried that this form of government will make it harder to come up with a credible deficit reduction plan, which is scaring off investors.

It is now confirmed that while David Cameron and the Conservatives have won considerably more seats across the country, they are short of a majority.

People who have significant debts should take this opportunity to pay them off, since interest rates are likely to increase in the future, according to a sector commentator.

Director of the Motley Fool David Kuo highlighted how rates have already begun to creep up in the Far East, Australia and India, so if people are paying more interest on their debts than they are receiving on their savings, then they should put their money into getting rid of those debts first.

He stated: “It is only a question of time before the Bank of England starts to increase interest rates on this side also so if you have debts, now would be a good time to pay them off.”

In his view, this is the most sensible choice to make during the current economic climate.

These remarks follow the announcement by the Office for National Statistics that the consumer price index rose to 3.4 per cent and the retail price index reached 4.4 per cent in March of this year.

A finance expert from Bestinvest has suggested that consumers are right to use this time of low interest rates to pay off debts, since savings accounts are not paying out much at the moment.

Adrian Lowcock, senior investment advisor at the organisation, made his comments regarding research published by Sainsbury’s Finance, which showed that less people are taking out loans for debt consolidation than two years ago.

He suggested that the situation is indicative of the wider market, with interest rates on mortgages and personal loans going up and savings accounts not offering a particularly profitable return.

Mr Lowcock explained: “People had to consolidate their debts at various rates over the last couple of years. In some instances the loans are just not available so people have had to pay down their debt.”

In his view, in many cases it is down to people being realistic about the state of their finances.

Sainsbury’s Finance stated that one pound in every 13 borrowed by personal loans customers was used for debt consolidation in 2007, but this has dropped to one in every 50 in 2009.