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Clampdown on PPI hard-selling

Consumer victory as watchdog reins in ‘hard sell’ payment protection insurance

Thursday 13 November 2008

Writes Seamour Rathore
seamour.rathore@consumerchoices.co.uk

The competition watchdog has pulled the rug from the ‘rip-off’ payment protection insurance industry and paved the way for a fairer, more open PPI market for consumers.

Competition watchdog, the Competition Commission (www.competition-commission.org.uk) has initiated a ban on the sale of payment protection insurance (PPI) alongside credit products such as loans, mortgages and credit cards.

PPI is insurance to repay a credit product if the purchaser loses their job or is unable to work through illness.

The main reasons the commission gave for its decision are that banks, mortgage and credit card companies face little or no competition when they push policies at the point of sale, and quotes fail to clearly show that the PPI policy is not part of the standard credit product.

Peter Vicary-Smith, chief executive of Which? said: “This is a huge victory for consumers who have often felt pressured into buying expensive and inadequate PPI products. It sounds the death knell for shoddy protection and is a wake up call to the industry to develop useful products that consumers actually need.”

The Commission plans to stop companies from selling PPI until 14 days after consumers have taken out the loan, credit card or mortgage. This should give consumers the time to shop around and compare prices from all sources including independent PPI providers.

Other problems with PPI are that it can be massively expensive and is often paid up-front – known as a single premium. This means that consumers have no flexibility to change their provider – they’ve already paid the full amount on day one.

Which?’s Peter Vicary-Smith, said: “Single premiums trap people into poor value products that are difficult to get out of. By staggering the payments, consumers will have more control.”

In addition, many consumers have more PPI coverage than necessary due to having been sold multiple products.

Sharon Bratley, chartered financial planner at fairinvestment.co.uk (www.fairinvestment.co.uk) said: “Bad practice has been rife in the PPI market for years. Not only are consumers being sold complex policies that they don’'t understand, in many cases, they are not aware they can buy PPI elsewhere.”

Banking and insurance groups have slammed the Competition Commission’s decision and said if it carries through in its final ruling in January 2009 it will effectively kill the market. They also argue that in these uncertain times, the public needs PPI to cover their credit agreements in the event of job losses.

Nick Starling, director general of insurance and health for the Association of British Insurers (www.abi.org.uk), said: “Unemployment claims on PPI policies have grown by 69% in the last 12 months, showing just how valuable this cover is.”

Office of Fair Trading (OFT) figures show that in October 2006 there were around 20 million PPI policies in place with that number increasing by around 7 million each year. It estimates that the financial services industry makes around £5billion from the sale of these policies annually.

Chris Eagle, commercial manager at CreditChoices.co.uk said: "This financial racket has been dealt a death blow. More transparent pricing will make it easier to compare products and understand the true cost of cover."

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