Customers ripped off on protection insurance

The Competition Commission has published details of its investigation into payment protection insurance (PPI).

It says that lenders who sell the insurance can earn £1,200 on a policy that can cost only £20 to sell.

The Commission’s investigations follow complaints from consumer groups that PPI is expensive, unnecessary and difficult to claim.

Sales commission rates on PPI sold alongside loans and credit card agreements range from between 50% and 80% and the Commission says that the profitability of the personal loans sector has been heavily supported by PPI sales since 2006.

The report states: “The personal loans business has suffered from declining profits in recent years, to the point where in 2006 it appears to have been loss-making before taking into account income from PPI. With PPI included, the sector appeared to have been marginally profitable.”

The sale of PPI was referred to the Competition Commission following a two-year investigation by the Office of Fair Trading and a final ruling is expected this summer.

The FSA is also conducting an investigation into whether the sale of PPI conforms to regulations on treating customers fairly.

The moral of the story:

Do not buy protection insurance from banks or building societies - seek independent quotes

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