The Financial Services Authority (FSA) has published proposed guidance for firms that sold payment protection insurance (PPI) and are beginning to contact customers who may have been mis-sold a policy but have yet to complain. The guidance outlines steps firms should take when writing to these customers. It stresses the importance of these communications explaining clearly why the customer may have been mis-sold and could be entitled to redress, what the customer should do to respond to the firm, the time limits involved and the need to act promptly. The letters are part of a process being undertaken by PPI firms to establish what caused the large number of complaints; this is called ‘root cause analysis’. When an FSA authorised firm identifies recurring or systemic problems in its sales processes it is required to correct them. The firm should consider what action it may need to take to treat fairly affected customers that have not complained – including contacting them and giving them the opportunity to claim redress. The proposed guidance sets out the FSA’s expectations that the letters should be clear, fair and not misleading, and include a clear explanation of the following:

• that the letter contains important information and should be read carefully;
• that the customer may have been mis-sold;
• the specific failings that led the firm to believe the customer may have been mis-sold;
• that the customer may have suffered a financial loss and could be entitled to redress; and
•  that the letter requires careful and immediate consideration and there is a time limit for making a complaint.

The FSA is also asking firms to ensure these letters are free from financial jargon or marketing material. The guidance consultation stresses the importance of keeping records of any response from the customer and the subsequent actions taken by the firm.