The Financial Services Authority has written to all firms that are still selling single premium PPI (payment protection insurance), since the decision by major banks last month to no longer sell it.
After the announcement by Alliance & Leicester, Barclays, The Co-Operative Bank, Lloyds Banking Group (including Lloyds TSB, Halifax, and Bank of Scotland), and RBS/NatWest to stop selling single premium cover, the FSA said it hoped that other banks would follow suit.
It has now written directly to those firms which are still offering it, instead of only offering regular premium payment protection insurance
products, to request that they do the same.
The decision has been made after many customers were being encouraged to buy expensive cover for their unsecured personal loans
The chief executives have been asked to withdraw the product as soon as possible, but by no later than May 29, as part of the FSA's clampdown on mis-sold payment protection insurance
, having unearthed a number of cases where customers were sold cover which was unsuitable for them and bad value for money.
While offering protection against being unable to keep up with repayments, paying a single premium for PPI means that it is added onto the total of the loan, and therefore accrues interest along with the rest of the debt. A regular premium, however, does not increase the amount owed.
The sale of PPI after October 1, 2010 will be prohibited, as laid out in the Competition Commission's final report of its inquiry into the PPI market.
It revealed that several loan providers were guilty of pushing this expensive cover onto customers; some did so by making them think they had to take it out in order to secure the loan, while others simply added it to the loan without the customer's consent.
"We recognise the severity of the current economic climate and the financial problems many consumers are facing." said Jon Pain, the FSA
’s managing director of retail markets, in the letter. "Moreover, we believe that PPI can play an important and legitimate role to cover repayments on specific credit agreements for consumers facing job loss, or other issues at this difficult time.
"However, our focus remains on how this product has been, and continues to be, sold and whether consumers have been treated fairly during the sales process."
The request is "justified", added, in order "to bring an orderly withdrawal of single premium PPI from the market."
Louise Hanson, head of campaigns at consumer watchdog Which?, says: "The writing's on the wall for single premium PPI. All firms should listen to the regulator and stop selling these bad value products. If any company continues after 29 May, the FSA should name and shame them."
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