Barclays fights PPI ban
Barclays’ legal challenge against the banning of controversial payment protection insurance (PPI) will be heard this week.
Earlier this year, the City watchdog announced it would ban banks from selling PPI at the time credit is taken out to encourage people to shop around. Banks had to stop selling single premium PPI policies alongside personal loans by the end of May, but have until October 2010 to continue selling this controversial product alongside credit cards.
However, Barclays is challenging the ban and, with the backing of Lloyds Banking Group, launched an appeal to the Competition Appeal Tribunal (CAT) questioning the findings in a report by the Competition Commission.
The report found that nearly 95% of PPI policies are sold at the point of sale, meaning consumers are not benefiting from healthy competition. It also found that consumers are paying too much for PPI and often take out policies without fully understanding whether they need it or not.
But Barclays argues that the Competition Commission’s report recommended the ban of PPI at the point of sale without any “proper evidential basis”. It is also concerned that the ban might result in borrowers failing to take out PPI at all – putting their finances at risk should they later find themselves unable to meet their loan commitments.
PPI generates around £5.5 billion revenue forbanks each year.
But consumer group Which? says Barclays should focus on developing protection products that offer value to consumers rather than championing “discredited” PPI.
“PPI has been widely discredited, so it’s important that it’s sold separately from other financial products to help consumers make informed choices about how best to protect their finances,” says Peter Vicary-Smith, chief executive of Which?
The legal challenge is scheduled to last four days, but CAT is unlikely to give its judgment for a couple of months.
Despite the challenge, the Competition Commission says it is pressing ahead with the ban.
• A prohibition on the sale of PPI during the sale of the credit product and for seven days afterwards
• A prohibition on single-premium policies (where the premium is rolled-up into the loan and attracts interest)
• Personal PPI quotes, annual reviews and other measures to make sure that improved information is available to consumers to make it easier for people to compare and search for products and switch policies at a later point
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.