FSA Fines Car Supermarket for PPI Sales Monitoring Failings
The Financial Services Authority (FSA) has fined UK Car Group Limited (UKCG), £91,000 for the failings of its appointed representative, CC Automotive Limited – trading as Carcraft – in respect of the monitoring of payment protection insurance (PPI) sales.
By failing to deal appropriately with concerns raised in internal audits regarding the sales of PPI by Carcraft, UKCG failed to take reasonable steps to ensure the suitability of advice given to customers. Therefore, UKCG fell short of the standards the FSA expects of authorised firms, and in particular what the FSA expects of firms using appointed representatives.
An appointed representative is person or company that is allowed to carry on certain regulated activities using the authorisation of another firm, which is called the principal. The principal (in this case, UKCG) takes responsibility for the regulated activities carried on by its appointed representative (in this case, Carcraft) and must ensure that the appointed representative complies with the FSA’s rules.
Carcraft, which is based in Rochdale and describes itself as “the UK’s leading car supermarket”, has a network of dealerships in England and Wales. Apart from its main business of selling cars it also sold consumer credit agreements, essentially personal loans, to facilitate vehicle sales. In many cases this included PPI.
Carcraft sold PPI policies on an advised basis from several different providers. The most extensive policies offered cover for loss of life, accident, sickness and involuntary unemployment.
In some cases the credit agreements were split across two finance agreements and two different providers, in others the cost of the car was financed through one lender while the extended parts and labour guarantee was provided by another. Furthermore, when PPI was sold it was possible for customers to buy separate policies, either single or regular premium or both, to cover the different credit facilities. It was therefore imperative that Carcraft made sure customers fully understood the products they were purchasing. Carcraft also had to ensure its own internal records properly reflected the advice being given in each sale to show how the sale had been made.
While UKCG’s sales model and standard documentation were sound and the way the audit system was established was robust, Carcraft’s own internal audits raised clear and detailed concerns with UKCG about the way PPI was being sold. UKCG took a number of steps to address issues raised in the audits, such as giving advisers one on one feedback and training following an audit. However Carcraft continued to fail to record in a sufficiently detailed fashion the advice provided to its customers. More generally concerns were also raised with regard to staff competence, monitoring of individual advisers and provision of completed documentation to consumers.
As the principal of Carcraft, UKCG was expected to take prompt and effective action to address the matters which were repeatedly identified concerning the failures of its appointed representative. While it took some steps to correct concerns highlighted in the audits, UKCG failed adequately to address, respond to or rectify the issues identified in the audits. This meant that, throughout the relevant period, customers faced an increased risk of receiving unsuitable advice.
Tom Spender, the FSA’s head of retail enforcement, commented: “The risk of consumer detriment arising from the sale of PPI has long been highlighted by the FSA and this case emphasises the need for authorised firms, whether acting in their own right or as principals of appointed representatives, to ensure that their own compliance systems and controls are robustly monitored and implemented effectively.”
The failings relate to the monitoring of PPI sales between 1 April 2007 and 30 September 2008. UKCG agreed to settle the case at an early stage of the investigation so qualified for a 30 per cent discount; without the discount UKCG would have been fined £130,000. UKCG ceased PPI sales in 2010 and has paid redress where appropriate.