Payment Protection Policies Are Facing Ban

By Martin Hickman

A MAJOR cause of the controversy surrounding payment protection insurance was removed yesterday when the Competition Commission said it wanted to ban sales of the policies when people take out loans and credit cards.

Banks should have to wait for 14 days before approaching borrowers to sell payment protection insurance (PPI), shielding them from instant pressure and allowing them to shop for better deals, the regulator said after a two-year investigation.

It also called for a ban on financial providers increasing interest paid by charging for the entire cost of a policy at the start of a loan. Consumer groups said the recommendations should end the worst of the abuses.

In January, the Financial Services Authority fined the HFC arm of HSBC Pounds 1m for failures to 163,000 customers and last month ordered Alliance & Leicester to pay Pounds 7m for its shoddy treatment of 210,000 customers. The credit card giants GE Capital Bank and Capital One Bank have also been fined for PPI failings.

One personal finance campaigner, Martin Lewis, estimated that half of the policies in force may have been mis-sold, potentially resulting in a pot of Pounds 10bn reclaimable from lenders.

PPI is meant to protect customers who take out mortgages, loans or credit cards from defaulting on their payments should they fall ill or lose their job.

But policies are riddled with exemptions which mean customers with a pre-existing medical condition or are self-employed cannot claim, and even those who do make a successful claim find policies pay out for as little as six months, regardless of the longevity of an illness or redundancy.

In a report about PPI in June, the Competition Commission said only 14% of premiums were returned to policyholders, compared with 54% for home insurance and 78% for car insurance. It estimated people were being overcharged by Pounds 1.4bn a year. Yesterday, the Commission said forcing firms to wait a fortnight before contacting borrowers would allow people time to shop around. "Single premium policies" - a lump sum added to a loan - would be banned. Providers may be ordered to give consumers a personal quote setting out the cost of the policy.

Peter Vicary-Smith, chief executive of Which?, hailed the findings as "a huge victory for consumers". But the Association of British Insurers claimed the Commission would "kill the PPI market" and leave millions of consumers unprotected.

(c) 2008 Belfast Telegraph. Provided by ProQuest LLC. All rights Reserved.

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