The Competition Commission (CC) has confirmed that it will introduce a remedies package based around a point-of-sale prohibition for all forms of payment protection insurance (PPI) after detailing how it will benefit customers. This follows the CC's provisional decision on this issue, which was published in May this year.
The point-of-sale prohibition would stop the completion of sales of PPI during the sale of the associated credit product such as a personal loan. It was one of a package of measures the CC planned to introduce following its investigation into PPI, which concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers.
The report and in particular the proposed point-of-sale prohibition were the subject of a legal challenge last year to the Competition Appeal Tribunal (CAT) by Barclays, supported by Lloyds Banking Group and Shop Direct Group Financial Services Ltd. Whilst upholding the CC's conclusions as to the competition problems in this market, the CAT ruled that it must in particular consider further the role and importance of a potential drawback to the prohibition, namely that it might inconvenience customers.
Peter Davis of CC says, “Having reviewed the evidence, we have come to a clear view that customers will benefit significantly from the market reforms we propose introducing for PPI products. In particular, these reforms will mean that PPI providers will, in future, face real competition where there is currently little. And, in consequence, the prices consumers currently pay for PPI will fall significantly. There are clear benefits of putting our remedy package in place. First, we found that some consumers would actually value an opportunity to reflect on their options away from the credit point of sale. Second, the package of remedies - including the point-of-sale prohibition - will introduce competition which is likely to bring substantial benefits to customers in terms of lower prices, better products and more choice. While the evidence does suggest that there is a potential downside to the prohibition, that some consumers will indeed suffer an inconvenience from not being able to purchase PPI at the credit point of sale, we are unanimous in our view that overall, consumers will be better off. We know that the major providers have been planning for a time when the prohibition is in force and in our judgement they will look to continue selling PPI in the future-but thanks to our measures it will generally be as providers of stand-alone products, rather than ones tacked on to the credit product, which will contribute to greater competition.”
It is more important than ever for customers to take out protection of this type. So it is very important for customers to have access to a competitively priced quality product that meets their needs and to have the chance to make a considered and informed choice.
The CC now move to introduce the full package of measures, which also include a prohibition on single-premium policies, a requirement to supply personal PPI quotes, annual reviews and other measures to make sure that improved information is available to consumers to make it easier for them to compare and search for products and switch policies at a later point.
PPI covers repayments on credit products if the borrower is unable to make repayments due to accident, sickness, unemployment or (in many cases) death. PPI is sold to cover a variety of financial products, but over 90 per cent of PPI sold in the UK is either unsecured personal loan PPI, credit card PPI, mortgage PPI or secured loan PPI.
In its 2009 report, the CC found that the vast majority of the UK's more than 12 million PPI policies were sold at the same time as a consumer takes out a loan, credit card or other type of credit. The CC found that many consumers are unaware that they can buy PPI from other providers, rarely shop around to compare prices and terms and conditions of PPI policies, and rarely switch PPI providers. The resulting point-of-sale advantage makes it difficult for other PPI providers to reach credit providers' customers and in the absence of such competitive pressure, consumers are charged high prices.
So banks are to be banned from selling payment protection insurance (PPI) to consumers when they take out a loan. This means banks and other lenders will have to wait at least seven days before offering the product to customers taking out loans.