James Moore: Daniels' analogies are a little misleading: PPI is not like a trip to Tesco

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The Independent Online

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.