Sale of same-day PPI to be banned
The Competition Commission has announced plans to prohibit the selling of payment protection insurance at the same time that loans are being issued.
PPI protects consumers against missed repayments on credit products, due to illness, accident, unemployment or death. Over 90% of PPI sold in the UK is either on unsecured personal loans, credit cards, mortgages or secured loans.
Credit providers will be banned from selling PPI, alongside credit agreements on the grounds that the practice doesn’t give consumers the time to shop around and look for cheaper or better cover. “PPI customers currently have little choice and prices are high because competition is very limited.
"It is notable that even in the depths of the recession following the financial crisis we found that the economic profits of PPI distributors remained significant,” says Peter Davis, inquiry chairman and deputy chairman of the Competition Commission.
A report last year found the vast majority of the UK’s 12 million plus PPI policies are sold at the same time as a consumer takes out a loan, credit card or other type of credit. Findings also revealed few consumers realised they could buy PPI from other providers, or compare prices and terms and conditions. As a result, the commission called for a ban on point–of–sale PPI.
Barclays Bank legally challenged the report, heading up the Competition Appeal Tribunal (CAT), supported by Lloyds Banking Group and Shop Direct Group Financial Services Ltd. While CAT admitted there were problems within the market, it argued that the convenience of buying PPI on the same day was a benefit for many consumers and ensured they had protection.
Since then the Competition Commission has undertaken further analysis of the PPI sector and Davis believes that PPI providers are “overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale. All customers of course will appreciate the lower prices for PPI and the greater choice we expect to result from more competitive markets.”
Barclays is understood to be disappointed with the verdict, issuing the following statement: “In these times of economic uncertainty, adequate financial protection is more important than ever.”
Davis, however, points out customers would appreciate being given the time and space to either choose the right PPI product or decide not to purchase it. Protection paid on home catalogue shopping is the one exclusion from this potential ruling.
The Competition Commission is now inviting comments on its provisional decision before reaching a final verdict in July. If this is upheld, it will aim to put the full package of measures in place as soon as possible.
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.
Exclusion is a potential loss or specific risk that an insurance policy does not cover and they occur in all types of insurance policies. Common exclusions include: natural hazards (exploding volcanoes, earthquakes) war, nuclear fallout, wear and tear (anticipated through the use of a product, especially motor insurance), UFO damage to vehicles, vehicles “stolen” by vengeful spouses, travelling any pre-existing health problems and travelling to countries the Foreign & Commonwealth Office deems too dangerous.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.