Ban on PPI by Competition Commission

For the past few years the insurance cover known as Payment Protection Insurance or PPI has been causing a great deal of controversy in the financial world.

This type of cover is commonly sold alongside credit agreements such as loans and credit cards, and its aim is to cover repayments for a set period of time in the event that the policyholder cannot meet repayments due to sickness, injury, or redundancy. Although in theory this cover sounds like a good idea many problems have been uncovered in relation to PPI.

One of the problems with single premium PPI is that it is a costly form of cover, and the cover is paid for in one go when the credit is taken out. The cost of cover is then added to the loan, and this means that the borrower ends up paying interest on the money paid for the cover as well as for the credit. Another major problem that has arisen over PPI is that it has been so widely mis-sold that it has been at the centre of a crackdown by watchdogs and regulators, and has hit the financial headlines on a number of occasions.

In the past, and even now, providers and lenders have been found to have mis-sold this cover in a variety of ways. Some were selling the cover to those that could never actually claim or benefit from it, such as those that were self employed or retired. Some were hard selling the cover to those that were reluctant to buy it and even giving customers the impression that they could not get the finance they wanted without taking the cover, which is not true. Other people were being told that they had to take the cover from the provider that they were taking the finance through, which is also not true. And in some cases borrowers were even having PPI added to their finance without being told.

However, this could now all come to an end as a result of a decision made by the Competition Commission, which is one of the agencies that has been trying to crack down on PPI. The Competition Commission has recently said that in 2010 the sale of single premium PPI alongside credit agreements will be banned, which means that consumers will be at far less risk of being ripped off by this type of cover and at far less risk of being mis-sold this cover.

However, consumers that do want to take out this protection will not lose out, as they can still contact the lender themselves within twenty four hours if they wish to take out the insurance. Some concerns have been expressed by the Association of British Insurers, with officials from the ABI stating that the ban could put borrowers at increased risk in the current economic downturn. The move by the Competition Commission is one of a number of measures being introduced to ensure that competition within this sector is increased.

Inquiry chairman and Commission deputy chairman Peter Davis said: ‘Consumers’ interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider’s PPI product. The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect.’

As part of the new measures lenders will only have to wait seven days before contacting a customer to sell them cover instead of fourteen days. An official from the ABI said: ‘We welcome the reduction from 14 to seven days for the point of sale ban which shows that the Competition Commission has acknowledged our fears about the risks to borrowers. However, we remain extremely concerned that the fundamental risks to borrowers have not been addressed. Our job now is to work with our members and the regulators to minimise these risks and make it work. The devil will be in the detail.’

Tags: Competition Commission, taken out, selling, meet repayments, payment protection insurance