Banks and other lenders could face compensation claims, caps or even a total ban on selling payment protection insurance after the Competition Commission has said that they have been taking advantage of their customers.
According to the commission, 14 million loan, credit card and mortgage customers have been taken for a ride by their bank or lender, which have charged them an estimated £1.4billion for insurance to cover their repayments in the instance that they were struck by illness, accident or unemployment.
The commission found that a lack of competition has led to higher prices and less choice for consumers. It also found that it is difficult for customers to compare policies or switch to a better deal, that lenders have told them wrongly that they have to buy the insurance in order to get the loan, and that some companies have subsidised attractive rates on credit with higher insurance premiums.
Consumer campaigners have argued that mis-sold payment protection insurance
has pushed many people into poverty, and that the policies are riddled with clauses and exclusions which make it impossible for many customers to claim.
Sales staff have been under pressure to push the insurance as the lenders have been profiting handsomely from the policies, but the competition watchdog's report on the industry could see them forced to place a price cap on the insurance, or to implement more transparency.
Consumer groups have suggested that the report into the missold loan insurance
could spark a consumer revenge movement, similar to the one which has seen customers reclaim unfair bank charges
in their thousands.
However, banking industry experts have warned that companies could take action to recoup losses if such a flood of compensation claims occurs, by further increasing the cost of consumer credit.
Martin Lewis, creator of consumer revenge website MoneySavingExpert.com said that
"It’s great to see a big beast like the Competition Commission getting its teeth into the PPI market. We’ve seen so many consumers have money ripped out of their pockets. PPI is big business, when you get a loan, the lender is usually making more money from the insurance than the loan. Yet as it's hidden in the repayments, people don’t realise they’re paying £1,000s over the loan's life."
“The entire loan insurance market has huge systemic problems; I wouldn’t be surprised if half the 20 million PPI policies in the UK had been missold and would urge anyone who has got a loan in the last six years to check whether they’ve got one of these policies and if they have, whether they were missold on it.”
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