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Inquiry into debt insurance sales

2007-02-08 05:18:44
Thursday 08:46:36
February 08 2007

Inquiry into debt insurance sales

loans The -£5bn payment protection insurance industry (PPI) has been referred to the Competition Commission by the Office of Fair Trading (OFT).

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The OFT has been investigating the sale of PPI since last spring and in an earlier report condemned the market for "failing consumers".

PPI is designed to help people repay loans, mortgages or credit card debt if they fall ill or lose their jobs.

Last month, the BBC learned that 10 banks face fines for mis-selling PPI.

The OFT highlighted several market failings, including:

Consumers do not shop around for the best deal on PPI

The complex nature of PPI makes comparison between different policies difficult

Consumers in some cases assumed, were told or were given the impression that taking out PPI would help the application for credit.

However, the OFT acknowledged that PPI could provide "worthwhile cover" for some consumers.

The OFT's original decision to investigate followed a so-called "super-complaint", made in September 2005 by Citizens Advice, that PPI was too expensive and was often sold to people who did not need it.

Citizens Advice, while welcoming the referral of the PPI market to the Competition Commission, was critical of the length of time it had taken.

"We need swifter action to protect consumers... this lengthy process, since our 2005 super-complaint, is doing little to protect people from PPI rip-offs in the meantime," said Sue Edwards, senior policy office at Citizens Advice.

The OFT argues that it has to consult all parties before referring an industry to the Competition Commission.

The Competition Commission has the power to fine firms and force them to change the way they do business.

FSA fines

PPI providers are also coming under fire from the Financial Services Authority (FSA).

The FSA, which regulates the sale of insurance, has indicated that it is set to fine 10 providers for mis-selling PPI.

News of the penalties could prompt customers who believe they were mis-sold PPI policies to launch compensation claims.

Last week, GE Capital Bank was fined -£610,000 over its PPI sales practices.

The FSA has said it wants to see an improvement of sale standards.

Source by Silvia Michela Carrassi

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