RIP PPI?
Should the Financial Services Authority ban payment protection insurance when it is sold with a loan? I ask the question because for the third year in a row a mystery shopping exercise by the watchdog has found PPI is widely mis-sold. In fact in some key areas it is as badly mis-sold as it was when the FSA first investigated the business in 2005.
Payment Protection Insurance is sold alongside personal loans as a way of ensuring the monthly loan repayments are still made if the borrower loses their job or falls ill. It sounds like a good idea. The trouble is that the product is full of escape clauses for the insurer. Older people, those with existing medical conditions, those who did not report every visit to the doctor (relevant or not), those who lost their job for any reason except compulsory redundancy and other groups are excluded from claiming. Even those who do successfully claim often find the insurance often does not cover all their payments nor does it cover them for as long as their misfortune lasts. But these key facts are being hidden from customers.
The watchdog admits after its latest market research that "little or no progress has been made" in three areas. Firms are not giving customers clear information about the product. They are not telling customers what they are covered for and whether they are eligible for it. And firms are failing to tell customers why the particular policy being sold to them is suitable.
Out of 150 firms investigated one hundred failed to conform to the rules for selling PPI and because they withheld information customers could not make an informed decision on whether to buy PPI or not.
Over the last two years the FSA has fined eight companies – and one chief executive – a total of £1.8 million for poor practice over the sale of PPI or related products. It has published half a dozen reports criticising the industry. But still the mis-selling goes on – doubling the cost of loans in many cases and often providing nothing for the customer.
The reason is simple. PPI is highly profitable. It is sold to the customer as part of the loan deal and most people sign up without thinking even though they always have the choice to refuse it. As the vast majority never have to make a claim they never know that the product they have paid for may not work. Anyone who really wants PPI can buy it on the open market separately from the loan for as little as a tenth the price charged by some of the banks, lenders and agents who are making a fortune out of a financial ignorance.
So I ask again why doesn’t the FSA ban the sale of PPI with loans?
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