PPI terms cleared up

The Financial Services Authority (FSA) has agreed a series of rules to make the administration of refunds on payment protection insurance (PPI) fairer and more transparent.

The agreement in particular details changes to the policy of nil refund to customers who buy PPI with a lump sum at the beginning of the loan period, also called a single premium payment.

Clive Briault, FSA managing director of retail markets, said: "When properly sold, PPI can provide valuable protection. But we have been particularly concerned with so called ‘nil refund terms’.

"These are contract terms that prevent consumers from receiving a partial refund if they cancel a single premium PPI policy for any reason."

The agreement secured with the PPI industry stipulates that new contracts will not include nil refund terms. Customers whose contracts already contain nil refund terms will be told how the refunds will actually be handled.

In order to increase transparency, the agreement requires new policies to include examples or a table that illustrates how refunds are calculated.

Nick Starling, the director of general insurance at the Association for British Insurers, said: "We are working on additional initiatives to further improve consumer understanding of this product to help everyone get best value for money."