Banks challenge PPI ban
Barclays and Lloyds Banking Group are challenging a ban on the sale of controversial payment protection insurance (PPI), despite strong evidence that this product is mis-sold to consumers.
Earlier this year the Competition Commission published its long-awaited investigation into PPI with the recommendation that banks be banned from selling single premium policies alongside personal loans.
The City watchdog, the Financial Services Authority, decided to ban the sale of PPI at the time credit is taken out to encourage people to shop around and stop lenders pushing insurance onto customers.
Banks have until 29 May to stop selling single premium PPI policies alongside personal loans and until October 2010 alongside credit cards.
Six of Britain’s biggest banks, including Barclays and Lloyds, withdrew their single premium PPI offerings ahead of the FSA’a decision.
However, Barclays has now decided to challenge the FSA's ban and, with the backing of Lloyds, has launched an appeal to the Competition Appeal Tribunal (CAT) questioning the findings in the Competition Commission’s report.
The independent body, established to ensure there is healthy competition between companies in the UK, found that consumers are paying too much for PPI and often take out policies without fully understanding whether they need it or not.
Single premium PPI is particularly controversial as the cost of the insurance is added to the loan amount and attracts interest.
Barclays argues that there is no evidence that banning banks from offering PPI at the point of sale would encourage consumers to shop around. It instead calls for increased cooling-off periods to be introduced, giving borrowers more time to cancel policies.
PPI generates banks around £5.5 billion in revenue each year.
Peter Vicary-Smith, chief executive of Which?, says PPI is a “rip-off” with up to two million people paying for policies they aren’t eligible to claim on.
“It’s outrageous that Lloyds, a taxpayer-backed bank, is challenging the Competition Commission for the right to sell a rip-off product to the very taxpayers who bailed it out,” he adds. “Barclays and Lloyds should focus their energies on developing decent products that offer genuine, affordable protection.”
Barclays’ appeal is set to be heard by CAT on 7 September 2009. A spokesman for the Competition Commission says it will continue to press ahead with the groundwork for all its measures to be put into force, should the appeal be dismissed.
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.