The Competition Commission (CC) has decided that consumers will benefit from the introduction of a point-of-sale prohibition for all forms of payment protection insurance (PPI) except those sold by retailers.
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 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.
Since then, the CC has carried out a detailed analysis of the likely effects of such a prohibition including undertaking customer surveys, and an assessment of parties' internal documents and of various experiments looking at the possible impact of splitting the sales processes of credit and PPI. The CC has concluded that the benefits of a package of remedies including the prohibition, by introducing greater competition and choice and lower prices to the market, will outweigh the disadvantages, in particular the potential inconvenience to some customers.
Peter Davis of CC says, “Following the legal challenge we have done an enormous amount of additional work to examine in further detail whether the package of remedies we propose will provide an effective and proportionate way of tackling the serious problems that still exist with PPI.We found that many customers would place very significant value on being given the time and space to choose the right PPI product-or indeed to decide that PPI is not right for them. We also found that a significant number of customers appreciate the convenience of buying PPI instantly at the point of sale of credit. Overall we concluded that PPI providers are overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale. All customers of course will appreciate the lower prices for PPI and the greater choice we expect to result from more competitive PPI markets.”
PPI covers repayments on credit products if the borrower is unable to make repayments due to accident, sickness, unemployment or 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.
The vast majority of the UK's PPI policies are 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.
To nobody’s surprise, banks have again objected to the planned ban that could cost them lots of money in lost sales if most customers seeks out cheaper, and often better, alternatives than being pressured by sales staff to buy the bank insurance.