Money News

Consumers to lose out, as banks put off new protection selling rules

A better deal on payment protection insurance (PPI) for the public is on hold as banks complain of high costs.

New rules on the sale of payment protection insurance (PPI) have been put on ice as loan providers have complained about the high costs involved.

Regulator the Financial Services Authority (FSA) is extending a consultation on new PPI rules, angering consumer groups in the process.

Dan Waters, the FSA’s director of conduct risk, said: “We remain firmly of the view that the PPI market is broken and needs to be fixed.

“We’re disappointed that the industry has responded so critically to our proposals but we remain 100% committed to bringing about genuine, lasting change in the PPI market.

“We do, however, recognise the importance in ensuring that genuine concerns have been listened to.”

The FSA has so far banned single premium PPI, but wants to stop lenders selling policies at the same time as loans completely.

Financial firms have complained the FSA underestimated the cost of compensating PPI complaints or the cost of changes to the sales of the loan insurance.

Dealing with PPI complaints could now cost financial firms between £700m to £1.2bn over five years.

Consumer groups have hit out at the delays.

Peter Vicary-Smith, Which? chief executive, said: "After years of mis-selling and poor complaints handling by the industry, consumers want to see action on PPI, not more consultations.

“The FSA must stand firm in its commitment to ensuring the fair handling of complaints and not bow to industry pressure. It’s vital that the FSA’s original plans to force firms to review rejected complaints are implemented quickly.”

Common failures in the sale of PPI highlighted by the FSA include pressure on customers to take out a policy and even firms selling policies without telling the customer.

Firms were also selling policies to those who could not claim, such as the self-employed or those with existing medical conditions.

Companies have to make it clear PPI is optional and provide information of the cost of a loan with or without the protection.

Single premium policies have been banned as customers are not able to switch providers and to halt cover midway through a policy if a loan is paid off. Firms have also been criticised for very high profits on deals.