Moves to ban the sale of Payment Protection Insurance at the time a mortgage, loan or credit card is taken out should be applauded, not criticised, says PPI lobbyist Sara-Ann Burgess from Burgesses.

A growing number of firms are suggesting that the proposals put forward by the Competition Commission in November last year, calling for a 14 day ban on the sale of PPI alongside the credit provision, will cause greater financial hardship as consumers will forget to purchase PPI at a later date or not know where to source it independently.

Payment Protection Insurance pays out a pre-agreed monthly amount should the claimant lose his or her income due to an accident, sickness or unemployment, meeting loan commitments and other bills, dependent on the premium paid.

The Commission recommended a 14 day ban on credit providers selling PPI to their customers in response to an increasing number of consumers who have been ‘duped’ into purchasing expensive policies that do not meet their needs.

High Street lenders account for 70% of policy sales and their point of sale advantage has led to widespread anti-competitive practices resulting in more than 25,000 complaints being lodged with the Financial Ombudsman Service in 2008.

However, research undertaken by an online financial comparison site says two thirds of people believe they should be allowed to buy PPI at the same time as taking out a mortgage, loan or credit card and one in five adults - 6.5m people – will be less likely to purchase PPI if the Commission’s proposals go through.

Sara-Ann comments: “This clearly indicates people are unaware they are being exploited by their lenders and credit providers who often hide the cost of their cover in the overall loan calculation. If customers were treated fairly in the first place, the Commission would never had made these recommendations. I believe greater financial hardship will be caused if consumers don’t source PPI cover elsewhere.”

Independent providers’ policies have been found to be 10 times cheaper for loan protection, four times for mortgage and five times for income and often offer better benefits and support services
High Street lenders are widespread in their criticism of the Commission’s proposals, as they fear it will cut off a profitable income stream, and comparison sites have also recently condemned these measures, citing it will lead to people missing out on insurance.

Sara-Ann continues: “These people do not have consumers best interests at heart – they say they have – but if this was the case they would be applauding measures that give consumers greater flexibility and the option to purchase more extensive cover more cheaply.”

She counters: “I don’t believe consumers will forget to purchase cover and lose out as a result of a 14 day PPI selling ban. In this economic climate everyone is becoming more financially savvy and looking to save some money by shopping around - why should it be any different with PPI? Anyone taking out a mortgage, loan or increasing their credit will want to ensure they have the means to meet their monthly commitments and be able to continue their payments should something happen to their cash flow.”

Figures from recent online research show otherwise. MoneyExpert.com says only 26% of people have loan PPI cover, 37% have mortgage and 16% credit cards. Sara-Ann concludes: “All the more reason for providers and comparison sites to expend more energy on explaining the importance of PPI and signposting where they can purchase good quality, low-cost policies, independently. Getting a good deal is becoming a national mantra and the Commission’s proposals encourage PPI purchasers to adopt the same principles they do for other goods.”

Low-cost alternatives such as British Insurance, charges £3.40 per £100 for unemployment cover, £3.90 per £100 for accident, sickness and unemployment and £1.90 per £100 for accident and sickness. It has policies for home owners, those renting and people in shared ownership schemes and offers a back to work assistance programme.

The whining from financial services bodies in response to the Competition Commission’s recommendations to tackle Payment Protection Insurance mis-selling reminds me of spoilt children who cannot get their own way, says PPI lobbyist Sara-Ann Burgess from Burgesses.

Remedial measures have today been proposed by the Commission in a bid to increase competition within the PPI sector and so benefit consumers. Those working in the interests of consumers have welcomed these proposals, however protestations have been lodged by the Association of British Insurers, Finance and Leasing Association and British Bankers Association.

Sara-Ann comments: “This clearly smacks of ‘sour grapes’ because their members will be unable to continue profiteering at the expense of consumers.”

The ABI says the decision to ban the sale of PPI when taking out a loan will leave millions of consumers unprotected, increase their financial hardship and leave them unable to take out protection in a straightforward manner.

Sara-Ann counters: “What rubbish! The ABI clearly underestimates the intelligence of consumers – the Commission’s 14 day ban on lenders peddling their own PPI empowers consumers, giving them time to shop around for a better deal. Consumers are hardly going to take out a loan and within 14 days say they are unable to make the first loan repayment, so this ban will not result in any hardship. It’s more likely to increase the hardship for the lender whose profit margin will decrease.

“And is the ABI ignorant to the existence of the internet when it comes to purchasing straightforward cover? Put payment protection insurance into a search engine and numerous companies will come up. Many of them, such as British Insurance, are recognised as industry-leaders with award-winning products and services. Consumers are quite capable of deciding when and how they want to purchase cover and should not have it forced upon them. It also suggested these measures will deny consumers PPI – a knee-jerk response from an organisation who knows the time of reckoning has come for its members.”

Similar sentiments were heard from the FLA who not only feared vulnerable consumers will go unprotected, but that the loss of single premium policies will result in worse terms.

“This response beggars belief,” says Sara-Ann. “Over the years, its members have preyed upon the vulnerability of consumers and extracted excessive premiums from them. I fail to see how anyone can justify single premium policies – they result in consumers paying interest on the loan and the premium - it’s a like a double whammy that lasts for years.

“The FLA’s comment over single premium policies is a clear indicator of the dent the abolition of these policies will have on members’ profit margins. No longer will they be able to use the profits from single premium PPI to prop up loan losses – a tactic that’s been suggested by those scrutinising this sector.”
‘Without conscience’ is how the BBA views the Commission. It opines the proposals will encourage people to borrow without back-up and criticises the Commission for going well beyond its remit. Sara-Ann replies: “It’s a bit rich to be talking about conscience when BBA members clearly don’t have one. Out of the £3.5bn worth of PPI sold by the 12 largest sellers in 2006, £1.4bn was excess profit. And let’s not forget the Financial Services Authority recently fined Alliance & Leicester £7m after finding staff pressurised customers into buying policies they either didn’t want or need.

“I suggest the only people who have gone well beyond their remit are those with a monopoly who have used their sales advantage to the detriment of consumers.”

A view shared by consumer watchdog Which? who believes two million people purchased PPI only to find they cannot claim owing to the small print exclusions. The Financial Ombudsman is currently getting 100 complaints a day – the biggest source of grievances – and has called upon the FSA to take action to stop banks fobbing off customers who complain about PPI mis-selling.

Sara-Ann concludes: “Lenders suggest the Commission is reckless in pushing through its proposals, but I believe it’s the lenders who are irresponsible – their actions have tarnished the reputation of more honourable PPI providers and only served to push consumers further away from this product.

“These bodies are clearly acting in their own self-interest, they profess to be concerned about consumers, but their actions over the years are contrary to this. They deserve to have PPI taken away from them, as the saying goes ‘the punishment fits the crime’.”

The reign of ‘fat cat’ Payment Protection Insurance providers ripping off consumers with mis-sold and over-priced products is to end following intervention by the Competition Commission – and it can’t come soon enough – suggests PPI lobbyist Sara-Ann Burgess from Burgesses.

She explains: “For years consumers have fallen victim to pressurised selling tactics from High Street lenders who have a clear point of sale advantage over other PPI distributors. They account for over 70% of policy sales – a market share stronghold that has allowed them to mis-sell to and over-charge customers, in a bid to boost their flagging profits.”

However this is to change, following the Competition Commission’s announcement today, of its proposed remedies designed to increase competition in the PPI sector. They include;

Prohibiting the sale of PPI by a distributor to a customer within 14 days of the lender selling credit. This addresses the point of sale advantage and gives customers opportunities to compare products and providers.

Separating the PPI quote from the loan offer. Customers are to receive a personal PPI quote which outlines the price of the product individually and its cost when added to the credit product. If not given at point of sale, the credit provider must do so when contacting the customer to offer PPI.

Banning the sale of single premium policies - this acts as a barrier to customers switching and its costs are difficult to compare with other PPI policies.

Including certain information in PPI advertisements - such as the price of PPI, expressed in a common format of monthly cost per £100 of benefit, plus reference to the purchase being optional and products available from other providers.

Advertising personal loan and second charge mortgage PPI alongside any respective credit ads.

Providing the Financial Services Authority with information for use in PPI comparison tables.

Producing annual PPI statements, similar to the personal quote, encouraging customers to review their annual policies. This will make it easier when deciding whether to switch providers.

Sara-Ann comments: “The PPI sector has been under investigation since September 05, ever since it was referred to the Commission by the Office of Fair Trading. Since then a number of independent providers have lobbied for change, aware of the scale of the mis-selling practices and frustrated at the lack of regulation to rein the perpetrators in. I’m delighted that common sense and fairness has prevailed and measures will at last be put in place to protect consumers.

“What’s interesting is that the recommendations echo everything independent provider British Insurance has advocated for years; take away the lenders’ point of sale advantage, separate out the PPI quote and provide more information, ban single premiums – where a customer pays upfront for the cover and ends of paying interest on the cost of the loan and the accompanying PPI policy, clearly illustrate the costs so they can be compared to other providers and provide mechanisms for consumers to shop around.”

Sara-Ann concludes: “Customers have been severely disadvantaged by lenders’ anti-competitive practices and the Commission’s proposed remedial measures reflect the severity of the problem. It’s driven a cart and horses through everything credit providers do and is a welcome shake-up.”

Interested parties have until 4 December to comment on the Commission’s recommendations and its final report will be published mid January 2009.

In consulting with the market over proposed changes to the payment protection insurance (PPI) market, the Competition Commission must not let its final ruling be hijacked.

Campaigning for a fairer PPI market, Sara-Ann Burgess, director at PPI specialist Burgesses, says: “At the moment there are a lot of providers offering very spurious explanations of why they continue to charge single premiums, why they refuse to give pro rata rebates and why cutting the cost of PPI would increase the cost of available credit.”

The Competition Commission has asked for further information from the market before making its final recommendations, and Burgess said it was imperative that a disproportional weight was not given to the comments of those firms that clearly had huge interests in keeping single premiums in place and refusing to rebate consumers on a pro rata basis.

Single premium policies have never stood up to scrutiny, according to Burgess. “They are inflexible, carry unfair terms and the premium paid accrues interest. There has only ever been one winner in this market and it is not the consumer.”

Burgess said it was essential the Competition Commission did not allow itself to be inappropriately swayed by claims made by single premium providers that simply did not stack up and was delighted that some of their initial claims had already been debunked.

“The Commission has said that providers were overstating the case when they said they had significant front end costs to pay in personal loan PPI policies. It has also found that if consumers shop around they can prevent providers from penalizing them if they choose not to take out PPI. I hope the Commission refuses to let itself be hoodwinked as to the realities in this market and takes bold steps to make PPI work as it could and as it should.”

The fact that a growing number of independent providers are offering low cost, flexible products that many of the established providers are struggling to match shows there is a real appetite to give consumers a good deal.

“Firms like British Insurance have shown that PPI does not have to be expensive, complicated or confusing. The Competition Commission must be bold enough to open up the market and allow these players a chance to compete properly against an established guard that has consistently let its customers down,” said Burgess.