Banks and building societies are to be banned from selling sickness and unemployment insurance alongside personal loans following a string of complaints about mis-selling andother abuses.
The Competition Commission ruled yesterday that any lender loaning money to a customer will have to wait at least seven days before approaching the borrower to ask whether he or she would also like to buy payment protection insurance. PPI covers loan repayments in the event that the borrower cannot make them as a result of sickness, an accident or unemployment. However, there have been thousands of complaints about the cover from people who have subsequently found themselves unable to claim on policies.
The Independent led a campaign last year for reform of the rules on the sale of PPI, which was worth £4bn to lenders in 2007. Many borrowers have complained they were not even aware they had been sold PPI alongside their loans, or subsequently discovered they have paid massively over the odds for cover. Yesterday, the Competition Commission ruled that lenders selling the cover at the same time as loans had an unfair advantage over competitors, which had lead to the sort of abuses chronicled by The Independent.
"Consumers' interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider's PPI product," said Peter Davis, deputy chairman of the Commission.
By banning the sale of PPI by lenders for seven days, the Commission hopes borrowers will be more likely toshop around for cover, rather thanaccepting what's on offer from theloan provider or, worse, buying itunwittingly.
The Commission is also banning the sale of single premium PPI, where customers pay the entire cost of insuring a loan for the full term upfront, rather than through monthly premiums. Consumer groups have warned this type of cover has been particularly vulnerable to mis-selling.
Louise Hanson, a campaigner at Which?, the consumers association, welcomed the new rules, which come into effect in October, but said the crackdown was overdue. "Many consumers have suffered from shoddy, expensive and inadequate protection," she said.
Andrew Hagger, of Moneynet, said that, in some circumstances, PPI was worth buying, but accused big banks of using the cover to inflate profits. Mr Hagger said: "PPI can prove an invaluable product as many of the recently unemployed will no doubt confirm, but the pressure for consumers to sign up has often been more down to internal sales targets rather than a real concern to protect the borrower."
However, the Association of British Insurers (ABI) criticised the Competition Commission's decision.
"The ABI supports any measures that help people make an informed choice," said Nick Starling, the insurance group's director of general insurance and health. "However, the ABI believes that the point of sale ban carries significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more."
House prices continue to fall in new year
The new year has brought little relief for the housing market, with two major surveys revealing that 2007's big slide is continuing.
The Nationwide House Price Index fell 1.3 per cent in January, the 15th straight monthly fall, while the Land Registry's index showed a 2 per cent drop for December.
The latest fall in the Nationwide index took the reduction since the market's peak in October 2007 to 19.1 per cent. The year-on-year decline was the biggest since the building society launched its quarterly index in the 1950s.
Nationwide said falling prices and interest rates were not boosting property sales because people were worried about their job prospects.Reuse content