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Payment Protection Insurance Has An Over-Haul
The Competition Commission has asked for a ban on selling payment protection insurance (PPI) when people take out credit agreements. However lenders say the price of personal loans will rise.
PPI covers repayments if the holder is not able to pay due to accident illness or job loss. The commission wants insurers to wait 14 days before contacting the holder regarding purchasing cover.
Lenders claim this could result in increased costs for customers and may leave some with no way to repay the debt if they encounter financial difficulties. The proposal from the Commission is to make it easier for people to shop around for PPI's.
90 per cent of the 13 million policies sold are to borrowers with personal loans, mortgages and credit cards. The PPI market is worth over 5 billion pounds a year.
However, recently the Financial Services Authority has fined many lenders for mis-selling cover. A record 7 million pound fine was imposed on a major building society.
Complex products - Buying PPI in conjunction with a loan or credit card can often be more costly. Some lenders charge as much as 28 pounds per 100 pounds covered, but if you purchased cover separately this could be as little as 2 pounds 65 pence.
Many people, however, are unaware that they can buy PPI from other lenders and find comparing prices is difficult due to the how complex the product is. PPI policies that are paid upfront and the cost added to the debt are also facing being banned by the commission. It said that this makes it difficult for borrowers to shop around and switch products.
Giving consumers a personal quote is another proposal. Lenders would need to clearly state the cost of the policy, both individually and when added to the repayments. The provider then has to wait 14 days before they can contact the customer and sell them a policy. Earlier last year the commission was considering a price cap on the cost of cover but did not do it.
Poor timing - At a time when unemployment is on the up, lenders say the proposals are bad news for consumers. During the last few years there was a 69 per cent increase in the number of PPI claims in relation to job loss.
A director at The Association of British Insurers says, "This is devastating news for consumers. By effectively denying (them) PPI in the very economic climate that they need it most, the Competition Commission has got this completely wrong," "If the commission continues down this path it will kill the PPI market altogether, leaving millions of consumers with no protection at all."
According to The Finance and Leasing Association, whom represent numerous lenders that sell PPI, the end of single premium cover could end in customers paying more for loans. The group's director general, said: "The commission's proposals, which will raise the cost of credit, have ignored the prime minister's concerns about rising interest rates." "We call on the commission, even at this late stage, to reconsider."
However, Which? Chief executive said the proposals were "a huge victory" for borrowers. "This sounds the death knell for shoddy protection and is a wakeup call to the industry to develop useful products that consumers actually need."
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