More endowments are expected to be in shortfall

A powerful committee of MPs has quizzed the chief executive and chairman of the city watchdog on its handling of the growing scandal of endowment mortgage mis-selling.

Callum McCarthy, the new chairman of the Financial Services Authority (FSA), appeared in front of the Treasury Select Committee to explain his strategy for dealing with a growing tide of complaints from unhappy consumers.

The FSA has been accused by consumer groups of being slow to protect homeowners facing a shortfall in the value of their endowment policies.

The FSA has recently announced a series of initiatives to raise awareness amongst the public about endowment shortfalls.

Warnings

What can you do if you have an endowment shortfall, or believe you were mis-sold your policy? Read story here

Millions of UK homeowners who are relying on an endowment to pay off their mortgages have received warnings from their provider alerting them to potential shortfalls.

In the long term, these people could risk losing their home if they do not deal with the problem.

According to the Consumers' Association, a large number of people who face a shortfall do not act upon warnings received, or are unaware that there is a problem looming.

"More needs to be done by the Financial Services Authority and industry to inform people about their right to take their complaint to the ombudsman if they are unhappy with the way their complaint has been dealt with," a Consumers' Association spokesperson said.

Complaints soar

The FSA said it was looking for "unusual places" to "nag" people into dealing with shortfalls.

Recently, the FSA announced that it has chosen doctors' surgeries as a venue for its new posters alerting homeowners to endowment shortfalls.

In addition, the FSA is likely to advertise in tabloid newspapers to get its message across.

In September, the Financial Ombudsman Service - the body responsible for investigating complaints against financial service firms - said it expects to receive more than 50,000 complaints in 2003, up from 13,500 last year.

The MPs decided the issue of endowment mortgages was important enough for them to meet again later this year to look into the mis-selling issue in greater detail.

First outing

The Treasury Select Committee appearance was the first high-profile outing for Mr McCarthy.

Mr McCarthy enjoyed a reputation as a tough operator during his four years as head of energy watchdog Ofgem.

As a direct result of market reforms promoted by Mr McCarthy, power costs to industrial users has fallen by an impressive 30-40%, according to consumer group Energywatch.

FSA chief executive John Tiner appeared alongside Mr McCarthy.

In September Mr Tiner, who has recently been promoted from FSA board member to chief executive, promised that the watchdog would put consumers first.

But MP James Plaskitt contrasted the fines handed out to firms found guilty of mis-selling by the FSA and the action taken by the Office of Fair Trading (OFT) over price fixing.

The FSA has often said that it sees the naming and shaming element of a fine to be more important that actually hitting firms in the pocket.

On the other hand, the OFT was held up as an example of a body willing to take on firms and impose tough fines.

"The central problem lies in the twin role of the FSA - it is supposed to look after the consumer and prevent damage to the UK financial sector," Louise Hanson, Consumers' Association spokeswoman told BBC News Online.