In line with an ongoing investigation by the Financial Services Authority (FSA) into the selling of payment protection insurance, a number of banks have agreed to stop selling single premium PPI.
The FSA has welcomed the move by Barclays, Alliance & Leicester, The Co-Operative Bank, RBS, which owns NatWest, and Lloyds Banking Group – which now includes Lloyds TSB, Halifax and Bank of Scotland (HBOS) – to stop selling single premium PPI with unsecured loans
by the end of this month.
Single premium payment protection insurance
– whereby the cost of the cover is rolled up into the loan and therefore accrues interest – can considerably increase the amount that the customer ends up having to repay.
Some of the firms which have agreed to stop selling single premium cover will offer regular premium PPI instead, for which the customer pays a monthly premium that is unconnected to the balance of the loan and therefore not subject to interest.
The FSA has been investigating cases of missold loan insurance
after it emerged that customers were not being given sufficient information at the time of sale, or were being pressured by sales staff into buying inappropriate cover.
The FSA "recognises the importance of appropriate protection insurance in the current economic climate", as people fear losing their jobs and finding themselves unable to keep up with repayments on credit cards, loans and other debts.
But the regulator still "remains concerned over the standard of sales of single premium PPI.", and hopes that other firms will follow suit and reassess their own sales process of PPI.
Customers being sold loan insurance
should be told how the product works, the FSA has said, including what it covers and how much it costs, especially when the price of the PPI is tied to the loan and interest is charged.
Jon Pain, FSA’s managing director of retail markets, said of the new developments:
"We are pleased these firms have stopped selling single premium policies and would expect other firms to notice these developments and review their own positions.
"A PPI product can be helpful for customers wanting protection on a specific credit agreement, as long as the policy is sold appropriately. Consumers can visit our website, Moneymadeclear
, to get information on their protection choices."
Citizens Advice debt policy officer Peter Tutton also welcomes the announcement. Of the banks' decision, he said: "These premiums are very expensive and can add substantially to the cost of a loan, often increasing people's debts instead of protecting them against hard times." Make a loan insurance complaint »
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