Only Independent Firms Should Sell PPI, Suggests Burgess

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The Financial Services Authority's fining of Egg to the tune of £721,000 for mis-selling Payment Protection Insurance serves further to fuel the debate about whether this product should only be sold by independent providers, says PPI lobbyist Sara-Ann Burgess from specialist firm Burgesses.

Sara-Ann Burgess, MD Burgesses

They already have a captive audience and the tactics used are not far short from gaining money through menaces. It's high time moves were made to allow only independent providers - ie those who do not have a hidden agenda - to sell PPI.

The Financial Services Authority's fining of Egg to the tune of £721,000 for mis-selling Payment Protection Insurance serves further to fuel the debate about whether this product should only be sold by independent providers, says PPI lobbyist Sara-Ann Burgess from specialist firm Burgesses.

In a period covering January 2005 to December 2007, the FSA identified failings in around 40% of Egg's telephone sales of credit card PPI. When taking customer service calls or contacting new customers, Egg used pressurised and often 'subversive' selling tactics to push their PPI policy.

Customers who said they did not want PPI on their credit card were subjected to persuasive techniques known as 'objection handling'. This included putting too much emphasis on the positive aspects of the policy and advising that PPI was available, free of charge, for a certain amount of time. Egg then suggested the cover could be cancelled if the customer didn't want to pay the premium.

The FSA also found examples where PPI was applied to the credit card, without customer consent. Sara-Ann comments: "High Street lenders and the 'big brand' credit card providers know that once they've given a loan or agreed to provide a credit facility to a customer, they're more likely to get a PPI sale.

"They already have a captive audience and the tactics used are not far short from gaining money through menaces. It's high time moves were made to allow only independent providers - ie those who do not have a hidden agenda - to sell PPI."

In its latest remedial measures report, the Competition Commission recommended a ban on lenders offering PPI within 14 days of their loan, but in Sara-Ann's opinion this does not go far enough:

"They should take it away from them completely. Egg is the latest in a long line of unscrupulous providers who have been fined for preying on vulnerable customers and the only way this practise will stop is for the opportunity to be removed."

If payment protection was available from independent providers only, it could well impact on the number of complaints going to the Financial Ombudsman Service. Between 1 April and 30 September this year, 13,119 PPI cases were registered - well ahead of the 10,652 received for the previous financial year - and equating to over 71 a day.

Which? magazine calls credit card payment protection 'the elephant in the room that can no longer be ignored', but Sara-Ann counters that where sold independently from the credit card provider, it is low-cost, offering extensive benefits and services.

"It's easy for credit card debts to spiral out of control, especially when you lose an income because of redundancy. PPI will meet those debts for up to a year and you won't be paying over the odds for cover. Where properly sold, PPI is invaluable, especially in the current economic climate."

Standalone provider, Safety First, has a Credit Card Protection Insurance policy that pays off all or part of the credit card debt, dependant on the amount of benefit purchased.

Premiums are calculated per £100 of monthly benefit - allowing consumers to choose what proportion of the credit card bill they would like the insurance to pay off. Older-style policies tend to only pay a proportion of the total credit card bill, usually the outstanding minimum payment.

Prices are £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. There's also a back to work support service helping claimants with job seeking, CV preparation and interview techniques, plus access to a job vacancy database that's updated daily .

Sara-Ann concludes: "Yet again the extent to which providers will go to push their products on people has been laid bare. The FSA says Egg is likely to pay substantial compensation as a result of its misdemeanours and I applaud this. But wouldn't it have been better if customers hadn't been subjected to these underhand tactics in the first place? The 'big names' assure us they're treating customers fairly, but the FSA continues to prove otherwise."

In the space of just under three years, Egg sold 106,000 credit card policies at an average cost of £156, boosting its coffers by over £16m. Egg is the latest in a long line of providers gracing the PPI Hall of Shame - the FSA has already taken action against 19 firms. These include; the Alliance & Leicester (£7m), Liverpool Victoria Banking Services (£840,000), HFC Bank (£1.085m), Loans.co.uk (£455,000), GE Capital Bank (£610,000) and Capital One Bank (Europe) PLC £75,000.

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