The regulator is also considering whether permanently to extend the six-month time limit in which consumers can refer their PPI complaints to the Financial Ombudsman Service (FOS).
The measures were announced on 10th August in a policy paper setting out the regulator's finalised guidance on handling and redressing consumer complaints about PPI mis-selling. The paper is the final stage in a consultation process that began in September 2009.
The original proposals included a rule requiring firms to review all the PPI mis-selling complaints they have rejected since 2005. Re-opened complaints were to be reassessed and any compensation calculated according to new guidance aimed at ensuring firms gave complaints fair and balanced consideration.
In light of industry responses, the FSA published a set of revised proposals in March this year, setting aside the controversial "review rule" and making some clarifying amendments to the guidance, but otherwise broadly confirming its earlier approach.
Despite continued industry criticism that the measures are inappropriate and disproportionate, the regulator has not been persuaded to alter its position.
"After considering the responses [to the March consultation paper] and carefully weighing the potential impact on the industry and consumers in light of our statutory objectives, we have concluded we should press forward with our measures to protect consumers, but with some amendments that will address some of the industry's concerns that we believe are well founded," the policy paper concludes.
In fact, the final Handbook text remains largely unchanged from the March proposals. If, once it has weighed up the evidence in accordance with the new guidance, a firm decides that there has been a sales failing, it must consider what the complainant would have done had no mis-selling occurred.
If the complainant would have bought the PPI policy anyway, no compensation will be payable. In the absence of evidence to the contrary, however, the firm should presume the complainant would not have bought the PPI if the sale was "substantially flawed". In that case, the firm should aim to put him in the position he would have been in had no sale occurred.
This will usually mean paying the complainant the equivalent of a full premium refund plus interest. In the case of single premium PPI policies, however, the firm may choose to calculate redress on the presumption that the complainant would have bought a regular premium policy instead.
A new provision in the finalised Handbook text recognises that these remedies are not exhaustive and that, in some limited circumstances, a firm may adopt a different remedy altogether, provided it is appropriate and fair. But the policy paper makes it clear that this will be the exception rather than the rule.
The FSA has also raised the status of the sections on calculating redress from "guidance" (which is illustrative but not binding) to "evidential provisions" (which, if complied with, will be taken as evidence that the firm has complied with the relevant FSA rules). The sections on handling complaints and considering evidence remain as guidance.
Where a firm has identified recurring or systemic problems in its PPI sales practices, the finalised text now makes it clear that the FSA expects the firm to consider on its own initiative what steps it should take with regard to customers who may have been affected but who have not made a complaint.
The policy paper confirms, however, that the regulator has dropped the idea of an industry-wide review of past business and a consumer redress scheme under section 404 of the Financial Services and Markets Act. "On balance, we remain of the view that our complaints-lead approach remains an effective and appropriate approach as it is swifter and more proportionate than a section 404 review of sales," it says.
But the FSA is considering whether to make a permanent extension to the time limit in which consumers can refer their PPI complaints to the Financial Ombudsman Service.
The normal FOS deadline is six months after the consumer receives the firm's final response. In May this year, the FSA temporarily extended this limit for complainants who received a final response between 28th November 2009 and 28th April 2010. That extension ends on 27th October. The regulator says it will make its final decision "in light of developments over the coming months."
Firms have also been given a little more time to comply with the new regime. The original proposal was for the new guidance to come into effect in two stages - within one month and three months. This has now been replaced by a single implementation date of 1st December 2010.
The FSA, however, says it will not expect firms to begin any "own initiative" steps towards customers who may have been affected by mis-selling but who have not made any complaint until February 2011.
Kay Blair, Vice Chairman of the Financial Services Consumer Panel urged firms to start following the new regime as soon as possible:
"Consumers deserve to get an early Christmas present from firms and not to have to wait until the new 1 December deadline. The financial services industry has been dragging its feet over resolving PPI mis-selling and letting down customers by not handling their complaints fairly."