A damning report today exposes the "inexcusable scandal" of payment protection insurance (PPI) sales practices and blames a lack of competition for the problems facing the industry.
The Competition Commission (CC) report also suggests several measures it argues would improve the market for consumers, including banning a distributor’s right to sell PPI at the same time as another credit product, and introducing a price cap as a temporary measure to reduce prices. It is inviting comment on its suggestions
The report say most of the UK’s 14 million PPI policies are sold at the same time a consumer takes out a loan, and argues consumers are unaware they can buy the products from other providers.
It says this makes it difficult for other providers to reach these customers, adding that, in the absence of such competitive pressure, distributors such as banks, mortgage providers and credit card providers are able to charge higher prices.
Competition Commission deputy chairman, Peter Davis, says: “We've found serious problems with the PPI market and customers are paying for the lack of competition.
“The way PPI is sold as an ‘add-on' to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.
“Distributors don't appear to compete much with each other on either price or quality of PPI; neither do they appear to do much direct advertising of PPI to win customers from each other.”
Davis says increased competition in the PPI market would be beneficial to both consumers, providers and distributors.
“Most consumers understandably focus on the loan or credit and its APR and tend to make a snap decision when the PPI product is then offered to them, rather than looking at the true cost of the credit and PPI together, or at the range of PPI products available,” he says.
“In fact, many customers simply aren't aware that they can get PPI elsewhere, potentially for less and equally others believe that buying PPI from the provider increases their chance of getting a loan.”
David Lipsey, chair of the Financial Services Consumer Panel, says: “PPI, both products and sales, has been a source of inexcusable scandals for too long. The FSA has been tackling the regulated aspects of PPI, and now we see a clearer exposition of the competition issues in today’s report.”
But the British Bankers’ Association argues negative comment on PPI could unintentionally “leave customers exposed just as economic conditions are worsening”.
Angela Knight , chief executive of the BBA, says: “The industry has moved on since the Competition Commission research has been carried out. Customers are better able to shop around and make comparisons, there is more choice around and customers are provided with a separate document showing the key facts of the policy before they take it out.
“There are some issues that concern us. It's important that customers don't end up finding themselves worse off as a result of unintended consequences.”
The CC would like to hear views on the provisional findings report and notice of remedies from all interested parties, in writing, by 30 June 2008. To submit evidence, please write to:
The Inquiry Secretary (PPI market inquiry)
Or email: [email protected]
020 7034 2636
All-day event on 24 April
Consequences could be more severe than in stress tests
AFH has six segregated mandate funds
Variable operating expenses