Money News: Competition watchdog probes policies that 'fail' consumers

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Expensive payment protection insurance (PPI) sold by lenders and credit card providers will be subject to a full-blown investigation by the Competition Commission (CC).

The Office of Fair Trading last week announced that the £5.5bn industry would be probed by the CC after it found "reasonable grounds to suspect... features... which restrict competition to the detriment of consumers".

PPI - regularly sold with loans, credit cards and mortgages - is designed to pay out if the borrower cannot make repayments because of accident, sickness or unemployment.

However, the policies can be costly and because there are a number of exclusions - affecting the self-employed, for example - they may be mis-sold to people for whom they have little or no value.

In October 2006, after an earlier "supercomplaint" from Citizens Advice, the OFT declared PPI was "failing consumers" and said it was minded to refer the industry to the CC. Now, following a three-month consultation, the OFT has passed the case over. "The evidence as a whole suggests consumers get a poor deal," said OFT chief executive John Fingleton.

The OFT's own examination found consumers did not shop around for the best deal on PPI, and that product complexity made it difficult to compare different policies.

Its other major concern was lack of competitive pressure, as the big banks have a huge advantage when packaging PPI with loans. This makes it hard for standalone providers, which generally offer a better deal, to gain the attention of customers.

Crucially, the OFT also found evidence last year of a low "claims ratio" compared with other insurance products such as home and car cover. Only around one in five claims on PPI were successful, it reported.

"This referral will enable the CC to investigate... and, if necessary, ensure that appropriate remedies are put in place," added Mr Fingleton.

The CC will do one of three things after an investigation. It can absolve the companies and take no action; ask the industry to implement reforms; or impose its own rules to ensure fair practice.

Gas and electricity: British Gas bills come off the boil

Millions of British Gas customers will see the cost of their gas bills fall by up to 17 per cent and electricity by 11 per cent.

The changes won't come into effect until 12 March but the average annual "dual fuel" bill for its customers will be £167 cheaper at £953, the company said last week.

Lower prices had been made possible by new undersea pipelines boosting British Gas's reserves. "These new supplies of gas have directly led to the fall in wholesale prices, which we can now pass on," said Sam Laidlaw, chief executive of the company's parent, Centrica.

Between April 2003 and September 2006, the industry watchdog Energywatch reports that British Gas raised gas and electricity prices six times - by 69.4 and 63.4 per cent respectively overall.

Energy firms have come in for criticism after failing to pass on falls in the cost of wholesale gas. However, the companies say this is due to a time lag of several months between the industry prices paid by the supplier and those paid by customers.

"Other companies must now follow [British Gas] quickly, and consumers should once again be able to shop around and get big savings by switching supplier," said Energywatch director Adam Scorer.

Scottish and Southern Energy recently said it would cut prices this year but declined to say by how much.

The average gas bill in the UK now stands at £591, the watchdog said. For electricity, it is £360.

More than four million customers changed their supplier last year, said energy regulator Ofgem, which has previously urged every household to consider switching to take advantage of better deals.

As a rule, anyone who has never changed provider should be able to save up to £150, say switching websites.

Interest rates: Bank of England spares borrowers

Millions of homeowners breathed a sigh of relief last week when the Bank of England's Monetary Policy Committee voted to keep interest rates on hold at 5.25 per cent. Although most City analysts and industry specialists had expected no change, some had been nervous about another shock after January's quarter-point rise - the third in five months.

Some 40 per cent of UK households have a variable-rate home loan; another quarter-point rise would add £17 a month to a £100,000 mortgage.

Despite inflation running at 3 per cent, robust house price rises in many parts of the country and high employment, it's hoped last month's hike will prove enough to curb excess growth.

Mervyn King, Governor of the Bank of England, recently said that he expected inflation to fall back sharply towards the end of this year.

This week's quarterly Inflation Report will reveal more about the risks to overall prices.

As for further rate rises this year, the Council of Mortgage Lenders expects another quarter point in March - and a possible increase to 5.75 per cent in the summer.

Meanwhile, house prices rose by an average of 1.3 per cent in January, according to the Halifax.

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