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"Competition Commission to crackdown on PPI"

By admin | July 18th, 2008 | Featured

Payment Protection Insurance, otherwise simply known as PPI, has been at the centre of controversy for some time now. Over recent years there has been much evidence of this type of insurance being mis-sold, and the past couple of years has seen the Financial Services Authority really cracking down on the lenders and providers that are found to be mis-selling this insurance cover.

PPI is designed to protect consumers in that it cover repayments on loans, credit cards, and other types of finance for a specified amount of time in the event that the policyholder cannot make payments through injury or redundancy. However, it was found that this insurance was being mis-sold in a number of ways. Some providers were selling the cover to people that did not qualify for it, such as the self employed, who were then paying premiums for cover that they could never claim on.

Some lenders were leading borrowers to believe that they had to take cover out with them rather than with another provider, which is not the case. Some were convincing borrowers that they could not get the finance unless they took out PPI cover, which again is not the case. There were even lenders that were adding PPI onto a loan or other form of credit without even informing the borrower, resulting in higher monthly repayments for the borrower.

Whilst the FSA has made an effort to crackdown on lenders and providers engaging in this sort of activity, even fining one lender over £1 million for mis-selling PPI, the practice is still going on. In a bid to stamp out mis-sold PPI altogether the Competition Commission has decided that it will be taking action. The Competition Commission has said that it wants more information to be provided on PPI, and wants the cost of cover to come down. It has also suggested that it may place a ban on the sale of PPI with credit altogether.

One industry official recently said: ‘The prospect of preventing lenders selling PPI at the point of sale is an immense industry change which will, in effect, slash sales of PPI. For years lenders have relied on pushy selling tactics of overpriced PPI cover. ‘The risk of this change is that many people may not take up PPI when they need it. Given the ongoing impact of the credit crunch – with the distinct possibility of rising numbers of job losses – the timing of this change may not be good.’

According to officials from the Competition Commission consumers are being ripped off to the tune of £1.4 billion a year over PPI costs, and it blames this on the lack of competition in the industry. Another move that it is considering is a price cap on the cost of cover in order to reduce the chances of consumers having to overpay for the cover.

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