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Could PPI Mis-Selling Be Banned?
The Competition Commission has announced that they intend to ban the sale of Payment protection insurance (PPI) at the point of sale for both loans and credit and store cards. A respected personal finance expert estimates that up to 50 per cent of PPI policies, worth an estimated potential 10 billion pounds may actually have been mis-sold. He suggests this could be recovered from lenders.
A two-year investigation has concluded that lenders must allow a statutory 14-day "cooling off" period before being allowed to even attempt to sell PPI to their borrowers. The most obvious benefits to borrowers are that they will feel less pressurized to take the insurance offered by the lender, and that they will be able to shop around for possibly a much cheaper policy to suit their personal needs
The Commission has also requested a ban on lenders adding the cost of insurance policies on to the loan. This means borrowers are paying interest on the insurance as well as on the loan debt.
Historically, financial institutions have mis-sold various products for years. Pensions, endowment policies and now PPI have all come under the spotlight. Some of the tactics used to sell PPI, while ethically questionable, but still legal, have resulted in some large fines being levied on some major high street institutions. For example, the Alliance and Leicester were fined 7 million pounds as a result of their failure to treat 210,000 of their customers fairly. HFC bank (a subsidiary of HSBC - another major high street name) were fined 1 million pounds, again for the shoddy treatment it gave to its customers GE Capital Bank and Capital One bank were also heavily fined, for their failure to sell PPI ethically to thousands of their paying customers.
PPI is supposed to help borrowers to keep up repayments on debts such as mortgages, personal (and secured) loans, and credit and store cards in the event of illness, redundancy or unemployment. Clever marketing tactics could mean if you suffer from a pre-existing medical condition (for example, diabetes) or if you are self-employed, you could have signed up for a policy, which may well not allow you to make a claim. Even if you do qualify for payout on your policy, it will probably have a time limit - 6 months is the norm - but your illness or unemployment could well last much longer than that.
A report commissioned by the Competition Commission confirmed some of their worst fears regarding PPI sales and figures: only 14 per cent of PPI premiums are repaid to claimants. This compares with 54 per cent of premiums paid to claimants for home insurance claims and 78 per cent of premiums being paid to motor insurance claimants. The commission claims that customers were being overcharged by up to 1.4 billion pounds per year
A "cooling off" period of 14 days would allow borrowers to shop around for a policy to suit their needs. However, a customer could chose to contact his lender himself after 24 hours to agree to their policy.
Single premium policies, where a lump sum for insurance is added to the cost of the original loan would be banned under the proposed new legislation, and PPI providers would be legally bound to supply borrowers with a written quotation stating the full costs of the policy, so borrowers could make an informed decision before signing up for a policy
The Chief Executive of Which? Magazine thinks that the commission's findings mark a huge step forwards for borrowers. However, a spokesperson for the Association of British Insurers (ABI) sees it as the end of the PPI market, with the added risk of possibly leaving millions of borrowers totally unprotected. He maintains that as figures for the last year for policies issued have risen by 69 per cent, PPI still represents good value for money
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