Exclusive by Matthew Legg Business editor

Last updated 17:13, Monday, 15 September 2008

A crisis-hit Cumbrian car dealer has been fined more than £50,000 for mis-selling insurance to customers.

Breached rules: GK Ford, Kingstown, Carlisle

GK Ford, which is understood to have shed about 20 jobs because of falling sales, was fined £51,100 by the Financial Services Authority (FSA) last month for selling unsuitable Payment Protection Insurance (PPI) to car buyers.

The company, which has branches at Carlisle, Lillyhall near Workington, Penrith, Dumfries and Stranraer, was found to have “exposed 734 customers to the unacceptable risk of buying PPI policies that were not suitable for them”.

The FSA found GK salespeople were recommending the most comprehensive level of cover to customers regardless of whether it was the most suitable available for them. The practice was carried out between January 14 2005 and December 31 2007. Because GK Ford agreed to settle the fine at an early stage, it received a 30 per cent reduction, otherwise it would have had to stump up £73,000.

The firm was praised for co-operating with the inquiry and for working with the FSA to ensure affected customers received redress. The action was taken under the FSA’s Money Laundering Regulations 2007.

In its ruling, the FSA said:“These breaches relate to GK’s failure to take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who was entitled to rely upon its judgement.

“GK breached (this principle) by failing to take reasonable care in recommending a PPI product which was suitable for its customers and by failing adequately to monitor its sales.

“GK’s failings exposed 734 customers to the unacceptable risk of buying PPI policies that were not suitable for them. As a result GK failed to treat its customers fairly.” The FSA said the breaches were “particularly serious” because:

• Staff failed to gather sufficient information about customers’ circumstances and risked selling a product that was not suitable

• GK sales staff, as a matter of course, recommended the most comprehensive level of cover for which the customer was eligible rather than considering the most suitable level of cover for the customer’s needs

• GK produced a generic ‘statement of demands and needs’ document which was not individually tailored to the customer

• GK had an inadequate structure and ineffective procedures for monitoring sales and failed to routinely monitor sales

• GK failed to produce sufficient management information to ensure that senior management were aware of risks associated with its regulated business activities

• These failings arose against a background of advice to firms by the FSA highlighting the need to ensure their PPI sales processes were meeting FSA requirements

In mitigation, the FSA ruled that: “GK proactively, and without prompting by the FSA, suspended sales of PPI and implemented a remediation programme.

“GK has worked closely with the FSA to ensure that its remediation programme will lead to all disadvantaged customers receiving appropriate redress.”

No-one from the company was available to comment.