The Competition Commission (CC) wants to ban lenders from selling payment protection insurance (PPI) within 14 days of a customer taking out credit.
At present the “vast majority” of PPI policies are sold to customers at the same time as they take out credit, meaning there is “little or no competition” in the sector, says the CC.
Research shows that lenders are taking advantage of this lack of competition to charge massively inflated PPI premiums, often up to five times higher than a standalone policy.
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Cut down on mis-selling
The CC believes its proposed 14 day ban will help address the point-of-sale advantage and give customers more opportunity to compare products and providers, “in turn encouraging greater competition between providers”.
The proposed ban will no doubt help reduce the number of people being mis-sold policies – a recent survey by consumer magazine Which? found that 13% of credit card applicants wrongly believed that getting PPI was a condition of their credit card deal or that their application was more likely to be accepted if they had it.
The Commission says the two week ban will only be imposed on the lender, meaning that customers can still proactively contact the distributor and purchase a policy 24 hours after the credit sale.
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Ban on single premium PPI
The CC also wants to see an outright ban on the sale of single-premium PPI policies (where the whole cost of the cover is paid for up front with money that is also borrowed at the same interest rate as the loan), which it says act as a barrier to customers switching “and the costs of which are difficult to compare with other PPI policies”.
Among a raft of other PPI changes being proposed, the CC wants credit lenders to provide a personal PPI quote, which will clearly state the cost of the PPI policy individually and when added to the credit product.
“If this is not given at the point of sale, the credit provider must do so if they subsequently contact the customer to offer PPI, and the prohibition period starts from the date on which the personal PPI quote is provided to the customer.
The Commission is also calling on lenders to provide an annual statement for PPI customers to encourage them to review their policy annually and make it easier for them to decide whether to switch.
The CC will now provide interested parties with the opportunity to comment on its proposals before it publishes its final report, expected around mid-January 2009.
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