Banks cream £1,200 profit from every £20 PPI policy sold with loans

30 January 2008 / by Verity G
UK banks and insurance companies are making profits of up to 982 per cent on payment protection insurance(PPI) policies sold with loans, according to a report by The Competition Commission.

The findings of the latest investigation, presented as a Working Paper, found that lenders are making in excess of £2.6 billion a year from the controversial PPI scheme, with the average revenue from a single premium personal loan PPI policy for banks coming in at £1,200.

Along with the two main consumer regulators, the Office of Fair Trading (OFT) and the Financial Services Authority (FSA), the Competition Commission is carrying out investigations into high-pressure selling tactics that have resulted in many polices being inappropriately and unfairly sold to customers.

With common complaints such as back pain and mental health failing to secure a payout, it has since been revealed that cash earned from PPI that has helped the personal loan remain profitable for banks and other providers. In its report, the Competition Commission stated that: "The personal loans business has suffered from declining profits in recent years to the point where in 2006 it appears to have been loss making before taking into account income from PPI."

Further research by the Post Office has also found that PPI linked to a loan can cost five times more than standalone PPI, saving on average £705 over the period of the loan. Post Office Head of Protection Products, Duncan Caesar-Gordon, has called for a "more transparent" and "fairer marketplace."

The Post Office found average monthly PPI premiums stood at £28.05 – or £14.88 for every £100 of cover. "The Post Office has been calling for an open market for PPI sales since 2006, where providers are honest with customers that other, cheaper, standalone products are available, and has contributed to the Competition Commission's investigation to this effect," said Mr. Caesar-Gordon.

"Many customers continue to have little understanding of PPI and some do not even realise they have this insurance in force. Others, who have been at the hands of aggressive sales tactics, can feel they have no choice but to take the expensive policy tied to a loan or credit card if they want their application to be accepted," he added.

Tim Moss, Head of Loans at, has also critisised the current trend of mis-selling PPI: "This study may well bring a return to old-fashioned banking where the headline rate told you everything about a loan. Lenders may have to go back to the days where they made their money out of the interest rate they charged, rather than the additional products they sell."

However he warned that a change in the regulations could be reflected in a new pricing structure: "There will be more transparent pricing, but market-leading loans could well go from six or seven per cent up to eight or nine per cent, if PPI is clamped down on. Rates would have to go up to replace lost profits."

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