One of the biggest financial rip-offs could soon become a thing of the past after numerous high street banks promised to stop selling single premium Payment Protection Insurance (PPI) along with unsecured personal loans.
Barclays, Lloyds TSB, Halifax, Bank of Scotland, RBS/Natwest and Alliance & Leicester all announced they will pull the product by the end of January, and the financial regulator is urging other banks to follow suit.
Some of these firms now offer or plan to offer
regular premium PPI instead .
PPI becoming popularPPI covers repayments on a loan should the policyholder become unable to, and has become extremely popular in these times of rising unemployment.
However, single premium PPI has come in for particular criticism as it works out far more expensive for the consumer.
Whereas traditional
loan PPI is paid off monthly, a single-premium policy sees the entire cost added to the loan up front, meaning the customer pays interest on both the insurance premium and the money borrowed.
Single premium is twice as nice – for banksIn fact, single premium PPI is doubly expensive for the consumer as it also means they are forced to take out a policy with that specific lender.
This is problematic because many lenders hike the costs of their PPI in order to boost the profitability of their loan business.
Consumers looking for the cheapest possible cover should always shop around for a PPI policy, ensuring their search includes the
independent providers, which are often far cheaper than their high street rivals.
What the regulator had to sayThe Financial Services Authority (FSA) welcomed the decision to pull single premium PPI and added that it “expects other firms still selling it to take note of these developments”.
In an official statement the FSA said: “We recognise the importance of appropriate protection insurance in the current economic climate, but remain concerned over the standard of sales of single premium PPI.
“Customers being sold this type of product should be told how the product works, what it covers and how much it costs - especially as the cost of the PPI is added to the loan and interest charged on this amount.”
