The Office of Fair Trading has released a report in response to a complaint made by Citizens Advice in 2005. The group said that some parts of the payment protection insurance (PPI) market were very bad for consumers.
Payment protection insurance is meant to protect borrowers' ability to keep up with loan payments, and in theory, it should make it easier to avoid getting into debt. If the borrower gets sick, hurts themselves in an accident, or loses their job, the PPI should pay for a certain amount of time. It looks like borrowers aren't being told about exceptions that could mean they can't make a claim.
In addition to these omissions, it seems that borrowers do not get enough information about the product and do not know what the real cost of cover is.
Things are getting worse because different providers call the same products by many different names.
Not every borrower needs the security that these policies provide. Before getting the loan, they wouldn't have thought about buying extra insurance, and it's true that almost 90% of unsecured loan companies automatically add the cost of the PPI to the total loan amount. If you apply for a personal loan, you might see a PPI amount at the bottom of the calculations. You might even think that this is a requirement, which could be misleading.
The Office of Fair Trading found that the differences in prices had nothing to do with how much they cost. There were cases where policies that were almost exactly the same cost anywhere from GBP16 to around GBP40. Product providers seem to be making a lot of money from selling the cover, as the cost of claims is a very small part of the GBP5 billion they make each year from premiums.
The Office of Fair Trading was not happy with the PPI industry as a whole when it came to giving clear information about prices, but this was not always the case. Most of the time, marketing materials were on display without any indication of how much they cost.
25% of people who took out a loan thought, wrongly, that getting a payment protection plan would make their application for credit look better. Sales agents make a lot of money when they sell a product. A common commission is 60% of the price of the product.
Every year, a whopping 7.5 million PPI policies are sold, even though they are not right for many borrowers and many of them are very expensive.
There is a meeting about the Office of Fair Trading report. After that, more action is expected, and it is likely that they will encourage companies to improve the products they sell to customers. Then, plans will probably be made for a code of conduct. These changes would be up to the person.
In the event of companies not complying with whatever moves are proposed, it is possible that a full investigation and recommendations could be handed to either the Financial Services Authority or to the Competition Commission.
In the meantime, remember that this is a form of insurance that you can choose to get or not. Cover for accident, illness or loss of job can be found in other forms. In fact, it's likely that many borrowers who bought this expensive insurance already have enough coverage through other products.
Make sure you have all the facts. The money is yours.
