Loan insurance 'delay' proposed
Thursday 13 November 2008
Controversial payment protection insurance (PPI) should not be sold to a customer within 14 days of being sold a loan, the Competition Commission says.
PPI should ensure that people can still repay loans such as mortgages or credit card bills if their income falls when they lose their jobs or fall ill.
Planning a crackdown, the Commission estimated that £1.4bn of "excess profit" was made by the PPI in 2006.
But the proposals have been criticised by groups representing PPI providers.
PPI has been mis-sold in the past, with customers unaware they were buying it.
The sale of this insurance has been under sustained attack from consumer groups for the past three years, who have described it as little more than a "protection racket".
The Commission said that the vast majority of more than 13 million PPI policies in the UK were sold at the same time as a consumer would take out the loan or been given other credit.
But at this point the banks, mortgage providers or credit card companies faced little or no competition, with consumers unaware they could buy PPI elsewhere.
This meant that the providers were able to charge high prices.
The Commission said that the proposed 14-day window would allow customers to shop around for PPI.
Customers would still be able to take the initiative and contact a loan company within 24 hours of getting a loan if they wanted PPI from that company.
It suggested that providers be offered a "personal PPI quote" that outlines the cost of taking out the insurance. It wants a ban on "single premium" policies which stop customers being able to switch, because it is, in effect, paid for upfront by adding it to the total debt.
It also called on providers to make advertising clearer, to give information to the Financial Services Authority (FSA) for a comparison table and an annual report for customers helping to decide whether to switch.