Consumers were declared a victory recently as PPI (Payment Protection Insurance) was banned from being sold at the same time as credit products like personal loans or credit cards.
The Competition Commission concluded, after a 2 year investigation, that lenders have the upper hand when selling PPI with loans or credit cards. This results in an unfair and uncompetitive market where you as the consumer ends up being over charged.
The Commission ordered banks and lenders that they must wait a full week before trying to sell PPI, after having sold a loan or credit offer to a borrower. Also prohibited is the Single Premium variety of PPI. This is where the total cost of the insurance is added to the debt therefore dragging the payments out over the full term and of course incurring interest charges on this money.
Peter Davis, Competition Commission, said: “The ‘point-of-sale’ advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high prices. Allowing the current short comings to continue unchecked would be damaging to consumers.”
They hope that the new 7 day cooling off period will encourage the borrower to shop around for the best insurance available. The Competition Commission also ordered lenders to send personalised PPI quotes and Annual statements to customers.
PPI covers repayments on credit products, like loans or credit cards, if the borrower is unable to pay due to illness, accident or unemployment. Lobbiests say that the insurance is too expensive, and has had to many exclusions in the past. It has also been frequently mis-sold to customer who would never have been able to make a claim due to pre-existing medical conditions, or other factors which should have been discussed at the point-of-sale.
Louise Hanson of Which? said: “For too long too many consumers have suffered from shoddy, expensive and inadequate protection. It’s a great shame that since we began campaigning for better products, many people have wasted millions of pounds on PPI.”
However, a spokesman for the British Bankers Association said that loan cover was more important than ever for consumers during the economic downturn: “As two million people approach unemployment it is totally without conscience to encourage people to borrow without back up. The Competition Commission has gone well beyond its remit. This is an irresponsible decision exposing vulnerable customers to economic difficulty when they may need help most.”
The FSA, or Financial Services Authority, has already taken serious action against 19 firms over mis-sold PPI policies since September 2006. These companies include Egg, Capital One & Alliance & Leicester. This was mainly for selling the product without explaining the cost breakdown or exclusions, or selling the product aggressively.
Adding PPI to a loan over £8,000 would potential cost over £3,000, but many people, including the self-employed or those aged over 65, would be unable to claim. In one example, a couple borrowed over £50,000 and were persuaded to take out a PPI policy at a total cost of over £22,000.
Thousands of PPI policy holders have already reclaimed the costs of their insurance on the basis that they were mis-sold their policy.
“This must carry on; the Commission’s report strengthens the weight of reclaimers call – and everyone who’s ever bought one of these policies should check it to see if they’re due their cash back.”
In 2006 alone, lenders reported profits of over £1.4 billion just from selling PPI.