The Competition Commission has banned all banks and intermediaries from selling point of sale PPI and single premium policies from 2010.
In its final report it has concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers. To address the lack of competition, the CC will be introducing a package of measures to introduce competition in the market including:
- A ban on the sale of PPI during the sale of the credit product and for seven days afterwards
- A prohibition on single-premium policies
- Personal PPI quotes
- Annual statements
- 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.
The vast majority of the UK's more than 12 million 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 excessively high prices.
Peter Davis of the Competition Commission comments, “ Consumer interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider's PPI product. The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect. We are introducing a range of measures to give consumers the time and ability to make a considered and informed choice and other providers the chance to compete far more effectively with the initial credit provider. Competition will provide consumers with lower prices and better choice.”
The compulsory measures for all lenders will tackle the single biggest barrier to competition in this market, the credit providers' point-of-sale advantage, by stopping distributors of credit products from completing sales of PPI until seven days after the sale of the underlying credit product. This will open up the market, giving consumers time to search the market once they have secured their credit, and giving competing providers, who at the moment struggle to get a look in, the opportunity to offer their PPI products to these consumers. Consumers who decide that they want the PPI offered by their credit provider can contact that provider to purchase it after 24 hours.
Measures will come into force during 2010, with the information remedies in place by April 2010 and other measures by October 2010.
Naturally, banks and other lenders and trade bodies are predicting dire implications for consumers when this goes through. Consumers and consumer groups are delighted that they can no longer be bullied by lenders into taking out cover for fear of having the offer of loan or mortgage withdrawn. Insurers and banks have made huge sums of money from PPI in recent years; the anguished hand- wringing is about that loss. Insurers and intermediaries, who offer products that usually cost a lot less and often provide wider cover, are finally satisfied that the unfair competition from lenders will cease.
It will now be up to consumers to shop around to get the best deal.