PPI Should Have Been Included in Government's Debt Management White Paper Says Burgess

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Last week's Government announcement that consumers are to get their own 'champion' in the form of a consumer advocate and benefit from a raft of measures to help them better manage their debts is to be applauded says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses, but time will tell whether the theory works well in practice.

Last week's Government announcement that consumers are to get their own 'champion' in the form of a consumer advocate and benefit from a raft of measures to help them better manage their debts is to be applauded says Payment Protection Insurance lobbyist Sara-Ann Burgess from specialist firm Burgesses (http://www.burgesses.com), but time will tell whether the theory works well in practice.

In its White Paper 'A better deal for consumers - delivering real help now and change for the future' - the Government is proposing to appoint an advocate who will raise awareness of national issues and represent groups of consumers in court to help them seek compensation and refunds.

It's banning credit card cheques - blank cheques that are sent to card holders who are encouraged to use them as an alternative spending tool. These involve handling fees and contrary to credit cards, there are no interest free periods and no protection if something goes wrong.

Other debt-management measures include; preventing card providers increasing limits without their customers' consent, launching a new online credit card comparison tool, courtesy of the Financial Services Authority, assessing whether monthly card minimum repayments are too low (and so allow debts and accrued interest costs to spiral) and reviewing high cost credit providers (50% + APR) who offer credit over the doorstep or via payday loans.

There are also plans to assist people who are at risk from rogue traders - they will be supported by a team formed to tackle internet-based scams and a review of protection for consumers who pay for goods but are not delivered due to the company going into liquidation.

"All of these recommendations sound great," says Sara-Ann, "but unless the advocate has real power, he or she will not deter credit card providers from encouraging customers to plunge deeper into debt and it will probably take years to implement as there will be a consultation period."

The Government predicts its advocate will be in post early next year, but concedes the appointee will have no legal power as consultation and a new law would be needed to allow this to happen.

Sara-Ann comments: "I'm interested to see how fast the Government will tackle rogue trader issues as it's done little to address widespread mis-selling in the PPI sector for years. As a result of its sluggish response, consumers have sunk further into debt via prolific sales of single premium PPI, where the cost of the premium is included in the final loan amount and interest added onto both, complaints to the Financial Ombudsman Service have escalated, group actions are now being undertaken and providers have a free rein to increase their prices and restrict their cover.

"I wonder how long the White Paper review period will last for? The PPI sector has been under scrutiny for around four years now and the deadline for the Competition Commission's remedial measures isn't until April and October next year - some five years after the Citizens Advice Bureau first identified that features of the PPI market were seriously harming the interests of consumers."

She continues: "Given the continued failings that have been allowed to occur within the PPI sector, I'm sceptical about how effective these measures and the role of the advocate will be. I hope I'm proved wrong and sweeping changes are made to stop consumers being encouraged to spend beyond their means, but I would equally like to see greater PPI mis-selling clampdowns and more advice on how to shop around for cover."

Sara-Ann believes PPI is an effective debt prevention tool as it will repay monthly credit card bills for up to a year in the event the holder loses an income due to accident, sickness or unemployment and would have liked to see reference made to this product in the White Paper.

She concludes: "It only takes a couple of months of missed credit card payments to build up debts which is why this cover is so useful. Credit card providers should be pressurised into offering this cover free of charge to their customers or allow them to purchase at reduced rates.

"It's a shame the Government didn't consider PPI in its measures to tackle indebtedness - instead it's left to online independent providers such as Burgesses and British Insurance (http://www.britishinsurance.com) to ensure quality cover is affordable and accessible to all. Premiums are calculated per £100 of monthly benefit and firms such as these two charge £1.90 per £100 for accident and sickness cover, £3.40 per £100 for unemployment and £3.90 per £100 for all three - well below other providers' premiums."

Anyone looking for Credit Card Payment Protection should opt for a policy that pays off all or part of the credit card debt, dependant on the amount of benefit purchased. Older-style policies tend to only pay a proportion of the total credit card bill, usually the outstanding minimum payment.

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