The Competition Commissison Calls Time on PPI Scams

June 9th, 2008

The Competition Commission has suggested that overpriced Payment Protection Insurance (PPI) plans are costing consumers £1.4 billion each year. PPI is insurance for loan repayments if someone loses their income due to ill health or unemployment.

Lenders are able to get away with such extortionate deals because they are tied to the loans they are insuring. This ensures there is no competition in the market. The commission now suggests that firms may be banned from selling PPI policies to customers when they take out loans.

The Competition Commission has been investigating PPI after being asked to do so by the Office of Fair Trading and has said it was considering imposing temporary price limits on the policies, until competition brings their prices down.

The OFT had concluded that PPI was often a poor deal because the level of cover was less than customers thought. It in turn was responding to a “super-complaint” by Citizens Advice which was first lodged in September 2005.

The sale of PPI polices has been under severe attack in the past three years, with Citizens Advice describing their sale as a “protection racket”. The main financial regulator, the Financial Services Authority (FSA), has fined numerous banks, insurance companies and brokers for mis-selling the insurance.

In May the FSA fined the furniture retailer Land of Leather, and its chief executive, £224,000 because staff selling PPI policies had not been properly trained.

The main problem, according to the commission’s analysis, is that people are given no choice of potential insurance policies at the point of sale when they take out a loan, credit card or mortgage.

Many people do not know they can shop around and are unable to work out the real price of the policies, which are sometimes bundled into the cost of the loan. The policies are often complex and opaque and may be bought because the customers think that doing so will improve their chances of being given the loan.

The Commission suggests that advertising and marketing material should be in a standard form to explain PPI properly, to make different polices easily comparable, and to tell customers that they can shop around.

To help people switch to cheaper policies the regulator suggests that they should be renewed annually, with the provision of an annual statement of the policies’ costs and a reminder that they can be cancelled.

This entry was posted on Monday, June 9th, 2008 at 2:33 pm and is filed under Personal Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

The Competition Commissison Calls Time on PPI Scams

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