James Moore: Daniels' analogies are a little misleading: PPI is not like a trip to Tesco
Outlook One of the reasons banks were so keen to sell payment protection insurance (PPI) policies alongside personal loans is that selling personal loans hasn't been a very profitable business.
A competitive market means uncompetitive returns. To tilt the value equation back in their favour, banks used PPI.
The policies were sold alongside loans only by the bank issuing the loan, and they acted as a sort of cross-subsidy because while banks didn't have pricing power on personal loans, they most certainly did on PPI.
Eric Daniels, the former chief executive of Lloyds Banking Group, explained why this wasn't something we should be too worried about. Speaking to the Parliamentary Commission on Banking Standards, he likened it to a supermarket selling products as loss leaders to draw you in to the shop. Once there you'll buy other products that the supermarket can make a few quid on.
Another example he gave was the budget airline industry, which will sell you a ticket for a song, then tack on ruinous charges for any baggage you might have.
Mr Daniels, who pocketed several million pounds from his time at the top of Lloyds, can presumably afford rather more luxurious air travel and so will have missed the fact that this infuriates just about everyone. Except, perhaps, the kids who use Ryanair et al to hop on planes to places with cheap booze and cheerful climates, in the hope that they'll have good reason for not needing to pack any PJs.
The problem with his analogies is that they're ever so slightly misleading, because financial services is different to almost any other product a consumer might buy. Most people are well aware of what Tesco is up to when it offers an eight-pack of orange Kit-Kats for a quid.
There's also a fairly good understanding about what Ryanair is all about, although it's worth noting that the Office of Fair Trading has nonetheless had some hard words to say about its tactics.
It's not so easy to work out whether an insurance policy is good value or not. They are complex products, and sometimes deliberately so. To assess whether they are worthwhile often requires specialist knowledge. And it's not like you could use a price comparison site when PPI mis-selling was at its height and buy, say, a Barclays policy for a Lloyds loan.
What's more, if you miss the small print and turn up to the airport with too much baggage, the chances are you'll get ripped off. But at least you'll know better the next time.
Insurance is different. It operates over long periods. If you get ripped off you can end up being ripped off for years.
Financial companies know this and the problem with financial services, as Martin Wheatley, who will head the new Financial Conduct Authority, has often said is that the power balance between consumer and provider is weighted very heavily in favour of the latter.
It therefore imposes a particular responsibility on providers, which they've failed to live up to, time and time again.
Mr Daniels argued that Lloyds' PPI product was actually a super-duper one, and that the bank was on the side of the angels. In too many cases those angels were fallen ones.
- 1 Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
- 2 Katie Hopkins and The Sun editor David Dinsmore reported to police for incitement to racial hatred following migrant boat column
- 3 Giorgio Armani criticises the way some gay men dress saying 'a man has to be a man'
- 4 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
- 5 Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
Rarest Beanie Baby bought for just £10 at car boot sale could be sold for £62,500 on eBay
Katie Hopkins and The Sun editor David Dinsmore reported to police for incitement to racial hatred following migrant boat column
'Jihadi John': Isis executioner Mohammed Emwazi wanted to wage jihad in Somalia until his friends were betrayed and killed by al-Shabaab
Parma, Missouri: 80 per cent of town's police quit after first black mayor is elected
Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...