Crackdown looms on discredited PPI sector

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The Independent Online

British banks' multibillion-pound profits from Payment Protection Insurance (PPI) are set to be decimated over the next two years, as a result of an imminent crackdown on the discredited sector.

According to a report by Defaqto, the financial analyst, the forthcoming Competition Commission report into the sale of PPI policies will kickstart a "massive upheaval" for underwriters, lenders and consumers, wiping out a significant chunk of the £1.5bn of profits derived from PPI every year.

PPI policies are sold alongside credit cards and loans, supposedly providing protection should the borrower be unable to meet their repayments. However, the policies are often totally unsuitable for the customers who buy them, while most are also subject to onerous terms and conditions, ensuring that they rarely pay out in the event of a claim.

In spite of this, many PPI policies still end up costing consumers more than the interest which they pay back on their borrowing – sometimes hundreds or even thousands of pounds for a policy of no use.

The Competition Commission said in November that it is considering decoupling the sale of PPI policies from the sale of loans and other credit, to try to increase the levels of competition in the market.

Brian Brown, head of insight at Defaqto and lead author of the report, said there was still a place for PPI, arguing that theCompetition Commission needs to be careful not to completely annihilate the industry.

"We must be very careful not to throw the baby out with the bathwater," he said. "PPI has been exploited by lenders as an easy source of profit, but the products themselves can be extremely valuable. Policyholders need to carefully examine their personal circumstances and their policy wordings and form a judgement as to whether to retain them, seek cheaper alternatives or drop them altogether.

"PPI is the first safety net people fall back on before being forced to claim state benefits, and PPI's detractors should think carefully before advising people to cancel their policies unless they are prepared to accept responsibility for policyholders left unprotected by their advice."