The Competition Commission announced they will ban the sale and purchase of Payment Protection Insurance (PPI) at point-of-sale for loans, credit cards and store cards. An expert in personal finance estimates that as many as 50% of PPI policies worth an estimated 10 billion pounds could have been missold. This could be recovered by lenders, he suggests.
After a two-year investigation, it was found that lenders must give borrowers a 14-day cooling off period before selling PPI. Borrowers will experience fewer pressure to accept the lender’s insurance and will be able shop around for a policy that suits their needs.
The Commission also demanded that lenders are prohibited from adding insurance costs to loans. This means that borrowers pay interest on both the loan and the insurance.
For years, financial institutions have missold various products. PPI, endowment policies, and pensions have all been in the news. Some major high-street institutions have been fined large amounts for selling PPI. Although some of the sales tactics were ethically questionable, they are still legal. The Alliance and Leicester were both fined 7,000,000 pounds for failing to treat their 210,000 customers fairly. HFC bank, a subsidiary of HSBC – another big high street bank name – was also fined 1,000,000 pounds for its poor treatment of customers. GE Capital Bank, Capital One Bank, and Capital One Bank were also heavily penalized for failing to ethically sell PPI to thousands of customers.
PPI is designed to assist borrowers in keeping up their debt repayments. This includes mortgages, personal (and sometimes secured) loans, credit cards, and store cards, as well as any other debts. Clever marketing strategies could lead to you not being able to claim if you have a pre-existing condition, such as diabetes, or if your employer has a policy. Your policy will likely have a time limit. The norm is 6 months. However, your illness or unemployment may last for much longer.
The Competition Commission commissioned a report that confirmed their worst fears about PPI sales and figures. Only 14% of PPI premiums are repaid by claimants. This compares to 54% of home insurance claimants receiving premiums and 78% of motor insurance claimants getting premiums. According to the commission, customers were being charged up to 1.4 million pounds annually.
Borrowers would be able to shop around for the best policy that suits their needs during a 14-day cooling off period. A customer can contact his lender after 24 hours to accept their policy.
The proposed legislation would ban single premium policies that include a lump sum payment for insurance on top of the original loan cost. PPI providers would legally be required to provide borrowers with a written quote stating all costs so that borrowers can make informed decisions before signing up.
Which?’s Chief Executive Officer said that the findings of the commission were a huge step forward for borrowers. Which Magazine’s Chief Executive believes that the findings of the commission are a significant step forward for borrowers. A spokesperson for the Association of British Insurers sees it as the end of PPI, which could lead to millions of borrowers being left unprotected. PPI is still a good value for money, he maintains.
