Following a complaint made by Citizens Advice in 2005, claiming that aspects of
the payment protection insurance (PPI) market were severely harming the
interests of consumers, a report has been published by the Office of Fair
Trading.
Payment protection insurance is designed to safeguard borrowers’ ability to keep up loan payments and in theory it should make it easier to avoid getting into debt. If the borrower suffers an illness, an accident or loses their job, then PPI should step in and pay out for a specified period of time. It appears that borrowers’ are not being made aware of exclusions which may mean that they can’t make a claim.
In
addition to these omissions, it appears that borrowers’ have no true idea of the
real cost of cover and do not receive suitable information on the product.
What is
making matters worse is that providers are using an assortment of very different
terms for the same products.
Not all
borrowers need the protection that these policies offer. Prior to taking out the
loan they would not have considered the purchase of additional insurance and it
is a fact that almost 90% of unsecured loan providers automatically calculate
the cost of the PPI in the full figures for the loan. If you apply for a
personal loan you are likely to find an amount for PPI added to the bottom of
the calculations and may even assume that this is a pre-requisite, which could
be taken as misleading.
The
Office of Fair Trading revealed that the variance in the prices were not
relative to the cost. There were cases of virtually identical policies costing
from £16 to around £40. Product providers seem to be doing very well out of
selling the cover, with the cost of claims showing as a very small proportion of
the annual income of £5 billion which they receive from premiums.
In the
PPI industry as a whole, the Office of Fair Trading was not happy with regards
the provision of clear information on PPI prices, although this was not totally
the case. It was commonly found that marketing literature was on display without
any indication whatsoever of costs.
When
taking out a loan, 25% of borrowers’ had the mistaken impression that by taking
out a payment protection plan, their application for credit would be viewed more
favorably. Sales agents earn a considerable income from the sale of the product
and commission of 60% of the product price is common. An amazing 7.5 million PPI
policies are sold every year, despite the fact that they are unsuitable for a
great many borrowers’ and many of them are incredibly expensive. A feed-back
session on the Office of Fair Trading report is being held. Further action is
then expected and this is very likely to result in them offering encouragement
to companies to improve the product which they offer to their clients. Plans are
then likely to be put in place for a code of conduct. These moves would be on a
voluntary basis.
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 purely voluntary form of insurance. Cover for
accident
,
illness or loss of job can be found in other forms. Indeed it is likely that
many borrowers’ who have paid for this expensive cover are already amply insured
via other products.
Check the
facts carefully. It’s your money.