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
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory