PPI Sales To Be Banned Alongside Credit Agreements
Thursday, 29 January, 2009
From 2010 banks and credit card providers will no longer be able to sell Payment Protection Insurance (PPI) alongside unsecured loans and credit agreements. PPI is intended to cover repayments on unsecured loans if the borrower loses their job, becomes too ill to work, or dies.
The insurance has been the subject of controversy for years with consumer groups claiming that the market is uncompetitive and that the cover is frequently miss-sold. Last year, the Financial Ombudsman Service received over 25,000 complaints relating to the sale of PPI. In December, Egg was fined for miss-selling PPI with failings discovered in approximately 40% of sales.
Two months earlier Alliance & Leicester (A&L) had received a record penalty for miss-selling the insurance and was fined a staggering £7 million. The Financial Services Authority found that between January 2005 and December 2007, A&L sold approximately 210,000 PPI policies with an average cost per policy of £1,265 but the bank’s advisers generally failed to give customers details of the cost.
In addition, staff sold PPI without properly considering what customers needed and did not make it sufficiently clear that PPI was optional when taking out a loan. The Competition Commission has been undertaking a review of the market which has highlighted the fact that lenders selling PPI face little or no competition.
The Commission has therefore announced a ban on the sale of the insurance at the point of sale of a credit product and for a period of seven days thereafter. However, consumers initiating contact after 24 hours will be able to buy cover from their lender and lenders will still be able to sell PPI to customers, but only after seven days from the date of the credit agreement.
The new measures, which come into effect in 2010, will also see an end to single-premium policies which involves the premium for the entire period of PPI cover being added to the debt.
Source: http://www.insurancedaily.co.uk/
