A price reduction might ensure PPI can no longer prop up losses in lenders other business areas, but then they'll try and sell more. Even if they do produce literature with a caveat that says PPI can be sourced elsewhere, they'll use underhand tactics to keep it in-house.
Braintree, Essex (PRWEB) June 7, 2008
The Competition Commission's latest Report recommending measures to prevent consumers being ripped off by lenders selling Payment Protection Insurance is lightweight and will not protect against exploitation, says Simon Burgess from independent PPI provider, British Insurance.
In its Provisional Findings Report, the Commission states that consumers are overcharged £1.4bn a year for PPI - representing a 490% return on equity for the 12 largest distributors. Typical commission rates are between 50 and 80% for Personal Loan and Credit Card PPI and 40-65% for Mortgage PPI.
The Commission concludes that because lenders know they have a monopoly in selling PPI at the time of the loan application, they charge high prices at the expense of the consumer.
In a bid to reduce these vast profits, recommendations include; a possible prohibition on the selling of single premium policies (where the consumer pays up front for the product at the start of the loan and is stung for additional interest), the consideration of whether to ban the sale of PPI at the same time as the credit application, the possible introduction of a price cap as a temporary measure and proposals to allow suppliers to compete more effectively.
It also suggests consumers are given more information about what they're buying, have greater clarity on costs, are better able to compare products and can switch between providers more easily.
But this is not enough, suggests Burgess. "There's too much hesitation in this Report, why recommend a possible ban on single premium policies and the sale of PPI at the credit application and why opt for a temporary price reduction? And what are these proposals to enable independents to compete more effectively? The Commission should flex its muscles much more than it has done - impose a permanent price reduction or take PPI away from the lenders.
"A price reduction might ensure PPI can no longer prop up losses in lenders other business areas, but then they'll try and sell more. Even if they do produce literature with a caveat that says PPI can be sourced elsewhere, they'll use underhand tactics to keep it in-house."
He continues: "Lenders have proved they can't be trusted - I believe the only option is to remove PPI from their portfolio and then it will not only ensure consumers have access to products that are competitive, provide value for money and are properly sold, but it will address the horrendous mis-selling issues that come to light every day. Only last week, Which? Magazine published a Survey which showed that 32% of 579 respondents who purchased Loan PPI within the last five years would be excluded from making a claim."
Burgess concludes: "Hard-hitting decisions must be taken now! This whole process is too slow, there's too much talk and too little action. Whilst the consultation period continues to drag on, consumers continue to suffer."
The deadline for feedback to the PPI Provisional Findings Report is 30 June and the Commission's deadline for implementing remedial measures is February 2009.