470Payment Protection insurance (PPI)
posted on June 23rd, 2009
From October 2010 the single premium Payment Protection insurance (PPI) will be banned. The Financial Services Authority (FSA) has requested that firms stop selling the home business insurance now because of “ongoing concerns” with sales of this particular insurance policy.
PPI is supposed to repay borrowers’ loans if they lose their jobs or fall ill. There are more than 12 million PPI policies currently being used.
Single premium PPI policies involve the full insurance premium being added to a loan and actually inflate the borrower’s interest bill.
There have been complaints of the availability of the policies. The FSA’s managing director of retail markets, Jon Pain, wrote to chief executives imploring them to stop selling the single premium PPI with unsecured personal loans. Luckily the PPI doesn’t affect van insurance policies for the time being
“No firms will be selling single premium PPI on unsecured personal loans from today following FSA intervention and action with the industry,” said a FSA spokesman.
In 2008-2009 complaints about PPI policies nearly tripled compared to the previous year. Around 89% of all the resolved PPI cases were found in favour of the customer. The extent of the problem was revealed earlier in the week in the annual report of the Financial Ombudsman Service.
Fines
The sale of PPI has been highly profitable, partly because so few customers have been able to make valid claims.
The Commission found that in 2006, lenders made excess profits of £1.4bn when selling the insurance. Consumer organisations have found that borrowers are often also under the impression that taking the insurance is essential in order to be granted the loan at all.
And some customers have been misled about what the insurance covers, whether they really need it, or if they will even be able to make a claim under the terms of their policy. Investigations into mis-selling of PPI have prompted a series of heavy fines being handed out.
In October 2008, the FSA fined the Alliance & Leicester £7m for mis-selling PPI to 210,000 people. The FSA said the bank had trained its staff to pressurise any customers who disputed the inclusion of the supposedly optional insurance in the quotation for their loan.
