The regulatory crackdown on payment protection insurance (PPI) mis-selling is failing to deter unscrupulous credit card lenders, with 1.3 million customers misled into taking out PPI on their cards.
According to new research from consumer magazine Which?, just over 9.8 million people in the UK have credit cards with PPI attached.
Of these, 13% (1.3 million) 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.
A great product – for the lenders
Payment protection insurance covers you should you become unable to meet your repayments on money you borrowed, be it a personal loan, mortgage or credit card.
The problem with PPI is that it’s extremely expensive and often comes riddled with exclusions that make it difficult to claim. As a case in point, just 20% of the £5 billion collected from PPI premiums annually is paid out in claims, compared with 82% for car insurance and 54% for home insurance.
Credit card PPI is no different, accounting for almost a quarter (22%) of the overall PPI market, with only an average of 11% ever successfully claimed.
“With credit card PPI worth over £970 million a year to the industry and each policy costing consumers an average of £127.60, it's easy to see why almost three in ten (28%) people were told by their providers that having it is a good idea,” says Doug Taylor, personal finance campaigner at Which?.
Often best to avoid it
What makes credit and store card PPI a particularly poor product is the fact that it often only covers the minimum amount that must be paid each month, meaning your balance may never reduce.
"Credit card PPI is a modern day snake oil - it's a useless product, expensive and poorly designed,” adds Taylor. “As the credit crunch continues to take hold, people want to be protected and have peace of mind, but credit card PPI, like a house of cards, won't give you the support you need.
"No one should have to take out PPI on their credit card. It is the elephant in the room that can no longer be ignored."
FSA targets mis-selling
Because of the high profit margins on offer, many unscrupulous lenders have been tempted into mis-selling PPI to customers who have little or no chance of claiming. As a result, the Financial Services Authority has been cracking down on mis-selling, fining those found guilty as much as £1 million.
Of particular concern to the FSA is the fact that the vast majority of PPI policies are being taken out at the point of sale – that is, the customer purchases the policy at the same time as they take out the loan, mortgage or credit card.
This completely erodes the possibility of competition, and lenders capitalise on this by charging massively inflated premiums.
CC is also cracking down
The Competition Commission has also raised its concerns about the PPI taken out at the point of purchase. In a report released in June, the Commission claimed that PPI sellers are overcharging customers to the tune of £1.4 billion every year.
As a result, says it is considering banning the practice outright in a bid to boost competition in the sector.
The Commission is also mulling a ban on the sale of costly single-premium policies, where the whole cost of the loan is paid for up front with money that is also borrowed at the same interest rate as the loan.
Mis-selling still happening
Yet despite the close scrutiny of both the FSA and Competition Commission, the research from Which? shows that many lenders are still flouting the rules regarding the sale of PPI.
If you feel you may have been mis-sold PPI, there’s a good chance you may be able to reclaim your money. Read more about it in our guide to PPI refunds.
