Are price comparison sites in breach of financial advice regulations?
Concerns have been raised to price comparison websites that they are not treating consumers fairly. David Gallagher, solicitor for McClure Naismith discusses whether they are breaching financial advice regulations.
The FSA state in their letter that ‘Consumers may be being misled about the services they are receiving from price comparison sites, for example, they may believe based on the claims made by price comparison sites that they are receiving a quote based on their individual demands and needs when they are actually receiving an illustrative quote based on a set of generic risk criteria.’
Although most people checking quotes on a price comparison site proceed to purchase a policy without any other intervention or assistance, the FSA found that "all firms in our sample stated they rely on the insurer or intermediary selling the policy to check that the customer's personal risks are disclosed and it is often not clear what, if any, checks take place on customer eligibility".
The FSA has told well known price comparison websites, such as Moneysupermarket, Comparethemarket, Confused and Gocompare, that it should be their responsibility to check customers' eligibility and disclosure when applying for insurance products, rather than putting the onus on the consumer.
The FSA has in their letter has requested that firms actively consider whether they are introducing, arranging or even advising customers on purchasing an insurance policy, and check that the proper level of authority for these activities is in place. A number of the sites include "five star" or "best buy" ratings to certain products, and in doing so tread a fine line into the area of giving advice and recommending particular policies over another. In some instances the name or logo of only one insurance product was displayed on a website page containing generic advice, which could suggest to a consumer that a particular product should be preferred over others.
As a result of the activities highlighted in the FSA’s letter some website’s may discover that they will need to change their level of authorisation from one which is suitable for introducers of business to a more rigorous level applied to firms providing advice.
The price comparison websites have until 8 August to respond to the FSA’s letter.
While not expressly stated in the FSA’s letter, such practices could also be in contravention of the Consumer Protection from Unfair Trading Regulations. The regulations require businesses not to mislead consumers through their acts or omissions and also cover the distance marketing of consumer financial services, an activity undertaken by price comparison websites.
The regulations prohibit commercial practices which are misleading – i.e. by giving false information which deceives or “materially distorts” the consumer’s decision making ability and causes, or is likely to cause, the consumer to make a transactional decision they would not have otherwise taken.
The Office of Fair Trading took action under this prohibition in December 2010 against a blogging network which did not make clear that companies were paying it for writing promotional content about them.
A similar analogy could potentially be drawn with price comparison websites which receive fees and incentives from banks and insurance companies to promote their products as a ‘deal of the day’, ‘preferred choice’ or such like.
David Gallagher, solicitor on the information technology team for McClure Naismith