Banks overcharge £1.4bn on PPI
PPI: Banks overcharging £1.4bn
Thursday, 05 Jun 2008 08:59
Banks are overcharging customers over £1.4 billion a year for payment protection insurance (PPI).
The Competition Commission (CC) said in its provisional findings there appears to be "little or no competition" between companies selling the product, which is often sold alongside loans.
PPI pays out if the borrower can no longer make the loan repayments due to unemployment or ill health.
It is a type of insurance that can be bought by many different providers – but customers often do not realise and simply buy the product offered at the same time as taking out the loan, the watchdog said, making it very difficult for other companies to compete.
Inquiry chairman and CC deputy chairman, Peter Davis, said: "We've found serious problems with the PPI market and customers are paying for the lack of competition.
"In fact, many customers simply aren't aware that they can get PPI elsewhere, potentially for less and equally others believe that buying PPI from the provider increases their chance of getting a loan."
The CC wants to tackle the 'point-of-sale' advantage that lenders enjoy and says it is considering banning the sale of PPI at the same time as the credit product.
In addition, the regulator is considering the introduction of a price cap as a temporary measure to force down costs to customers.
The products have attracted a lot of controversy as they are often expensive when sold by banks – who make a significant profit on the policies – and are sometimes unsuitable for the customer.
In September 2005, consumer watchdog Citizens Advice made a 'super complaint' to the Office of Fair Trading, calling on them to launch an investigation into the PPI business. The OFT then asked the CC to look into the industry.
Citizens Advice director of policy Teresa Perchard said: "Consumers are not getting the best deal from PPI.
"Too often they are ending up in serious debt as a result of being mis-sold policies that are too expensive and completely unsuitable."
Shane Craig, managing director of independent PPI provider, Paymentcare.co.uk, said: "It was clear that PPI should not be linked to larger financial products at the point of sale."
He called for credit providers to be required to inform customers there were other providers of PPI that existed on the open market before attempting to sell them their insurance product.
He added: "Looking at the provisional findings of the Competition Commission some of the arguments put forward by the credit providers are just unrealistic. They say that there is an advantage to customers from being sold PPI at the point of sale in that this translates into a lower priced product. But every standalone provider of PPI offers better value in terms of price.
"They also claim that customers that buy a PPI product at point of sale do not have to go through a further interview to buy insurance for their credit at a later date but every standalone PPI provider offers their product on a non-advised basis we just give the customer the information they require and let them make up their own mind.
"We must break the point of sale connection between larger financial products and PPI."
Simon Burgess, managing director of PPI provider British Insurance, added: "The time for talking is over, it is time for action. It is demonstrable that the banks cannot be trusted, so we are looking for a total ban. If that is not palatable, then a permanent price cap, and a disclosure of profit margins on these products."
However, the Association of British Insurers (ABI) has warned the proposed changes could "destroy this market", which would "leave many people unprotected to deal with unforeseen financial crisis," according to Nick Starling, the ABI's director of general insurance and health.
Sarah Routledge