Lighthouse Advisory Services Limited has been ordered to pay compensation to a couple, after the Financial Ombudsman Service (FOS) ruled that the single premium mortgage payment protection insurance (PPI) plan they were recommended to take out back in 2007 was unsuitable.
Lighthouse appealed to an ombudsman at the FOS after disagreeing with the adjudicator’s original verdict, but has now exhausted all its avenues for appeal.
The reasons why the FOS found in favour of the clients include:
• The PPI policy did not cover the full term of the mortgage – the term of the insurance was only four years when the mortgage had been effected over a 21-year term
• The adviser did not explain clearly the total cost of the PPI, which was substantial given that the £2,574 single premium was added to the loan, with interest payable on this premium over the full 21-year term
• The lack of a pro-rata refund were the couple to have cancelled their PPI early
In her final decision, ombudsman Nimisha Radia said:
“The policy didn’t offer them the flexibility I think they may have needed.
“Had Lighthouse made the terms clear, I don’t think Mr and Mrs K would’ve bought the policy because I think that it’s more likely than not they would’ve wanted a flexible arrangement.
“I think if they’d understood that they were paying for the policy over 21 years and were only getting cover for four years, they wouldn’t have thought that was good value for money.
“So, overall I don’t think Mr and Mrs K were given the right advice and information at the time of sale. And I don’t think that the policy was suitable for them.”
Lighthouse will now need to refund the full cost of the PPI, with an allowance for interest at 8%.
The firm had attempted to argue that, as it was neither the lender nor the insurer, it had no control over the format and quality of the cost information disclosed to the clients, and added that it believed it had no obligation to draw the clients’ attention to the amount of interest payable.
However, financial advisory firms do of course have a duty to make sure that all recommendations are suitable for clients’ needs and financial circumstances; and have an additional responsibility to clearly explain the key features of each product.
Clients with single premium PPI plans are likely to have a strong case for arguing that they were mis-sold, as the insurance term did not usually match the term of the mortgage, interest was payable on the premium throughout the mortgage term and the refund terms were generally unfavourable.
In January 2009, the Competition Commission (CC) recommended that lenders should no longer be able to sell PPI at the same time as the loan. This effectively killed off single premium plans. The CC said that very few customers were shopping around for their PPI, and that this was leading to expensive, poorly designed policies being sold.
As with all PPI, consumers who were sold mortgage PPI and/or single premium PPI have until August 29 2019 to make a mis-selling complaint, ahead of a claims deadline to be introduced by the regulator, the Financial Conduct Authority.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.