Friends Provident hit by £675,000 home loans fine

Friends Provident became the latest insurer to have its knuckles rapped by the regulator over mortgage endowments yesterday, when it received a £675,000 fine for mishandling customer complaints.

The Financial Services Authority found the company was throwing out thousands of complaints when customers did in fact deserve redress, and said its complaints procedure was "inherently not fair and biased against customers".

Andrew Procter, director of enforcement at the FSA, said: "Friends Provident and its senior management failed to correct problems found in its systems when it had a reasonable opportunity to so. We will not tolerate poor systems which expose consumers to the risk that genuine complaints which may deserve compensation are rejected unfairly."

Friends, which has £40m set aside to compensate endowment customers, will look again at all complaints rejected between January 2000 and February 2003 after the FSA discovered 5,500 had been dismissed when they were "genuine and deserving of redress".

Customers had complaints rejected when there was no documentary proof to support the company's claims, the FSA said. And the regulator said it was company policy to assume that in cases where a customer held another investment product, this was sufficient evidence that they understood the risks of the endowment policy.

Millions of UK savers who bought endowment policies to cover their mortgages are now discovering shortfalls between their funds and the loan they were meant to pay off. Insurers and banks are likely to face spiralling compensation costs as the number of complaints rises.

The FSA is keen to expose evidence of mis-selling and poor complaints systems. Yesterday's fine for Friends, whose group chief executive is Keith Satchell, follows a number of similar fines by the regulator. Its actions have already seen 24 firms pay out £750m to about 450,000 people.

The Financial Services Ombudsman Scheme, which adjudicates on cases still in dispute after a company's internal complaints process has been exhausted, has had 30,000 complaints brought to it this year. About a third of its cases are upheld in favour of the customer and the total bill for compensating endowment customers could reach more than £1bn, according to Ned Cazalet, of Cazalet Financial Consulting.

Consumer groups said the financial services industry had much to do to improve its record on complaints. Louise Hanson, head of campaigns at the Consumers' Association, said: "Thousands of consumers have received poor treatment at the hands of Friends Provident. This serves as a warning to the rest of the industry that companies have to invest in complaints handling and treat customer complaints fairly.