Banks to miss out on PPI sales as watchdog unveils ban

High street banks are set to lose an important source of income after regulators insisted yesterday they would press ahead with tough new restrictions on the sale of payment protection insurance (PPI).

The Competition Commission said it would ban the sale of PPI – which pays out in the event borrowers can't keep up with repayments due to ill-health or unemployment – alongside the establishment of a credit card, loan and mortgage agreement.

The ruling means banks will no longer be able to sell the insurance to customers at the time they borrow, or during a fixed period – possibly 14 days – thereafter. The Commission said most borrowers had no idea PPI was widely available from providers other than their lender, and that they therefore rarely shopped around for a better deal on price or terms.

The product has also been at the centre of several mis-selling scandals, with a string of lenders accused of selling insurance to customers for whom it was not suitable.

Peter Davis, the deputy chairman of the Commission, said: "We found that many customers would place very significant value on being given the time and space to choose the right PPI product – or indeed to decide that PPI is not right for them."

The Commission's ruling yesterday mirrors the judgment it first gave last year, when it pledged similar action. That decision was subsequently challenged by lenders such as Barclays Bank and Lloyds Bank, with the Competition Appeals Tribunal last October ordering the Commission to review its findings.

The banks argued that many customers were happy to buy PPI from their loan, mortgage or credit card providers when first agreeing to borrow – and that they would find it inconvenient to have to wait to buy such cover, or to be forced to find an alternative source of insurance.

However, Mr Davis said: "Overall, we concluded that PPI providers are overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale." Consumer groups welcomed the ruling, which the Commission said it intended to implement as soon as possible after July, when a consultation period on its proposals ends.

"Having made our complaint about PPI to the Office of Fair Trading back in 2005 we are pleased this decision marks a significant further step in this process," said Peter Tutton of Citizens Advice.

"However the wider PPI agenda is not finished. People need to think about protecting their debts, but it's currently difficult for consumers to choose good-value products suited to their needs. The challenge now is to produce better effective simpler products at a fair price."

Peter Vicary-Smith, chief executive of Which? added: "It's important that PPI is sold separately from other financial products to help consumers make an informed choice and find the protection product that best suits their needs – the industry should now concentrate on developing protection products that offer better cover and value for money to its customers."

However, the banking industry was upset. "We are very disappointed the Competition Commission has decided to pursue a point-of-sale prohibition for PPI," said a spokesman for the British Bankers' Association.

"There is a real danger this will result in fewer people taking out PPI, leaving them with no protection if they lose their job. The Commission's decision could ultimately result in driving more people into bankruptcy as their debts will not be covered."

PPI generated an average pre-tax profit of £1.5bn a year for the banking industry between 2005 and 2009, the Commission said, though sales slowed dramatically last year as consumer borrowing slumped.

The industry has also seen mounting costs from consumers claiming redress for policies wrongly sold in the past. The biggest PPI distributors paid out £177m to settle complaints in the first 11 months of 2009, up from £55m for the whole of 2008.

Cost benefit analysis

£1.5bn

The average annual pre-tax profit earned by the banking industry as a whole from PPI between 2005 and 2009.

£177m

The total compensation paid out in the first 11 months of last year to consumers wrongly sold PPI contracts.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own