People who buy Payment Protection Insurance (PPI) are being overcharged by £1.4billion a year collectively, according to a report released today by the Competition Commission.
The commission found that the main reason for the overcharging was a lack of competition as payment protection insurance
policies are normally sold alongside the loans they are taken out to protect.
Consequently, the commission is looking into whether banning the sale of PPI at the same time as the associated credit product will improve the competition among PPI providers and thus bring the prices down.
As it stands, PPI, which insures for loan
repayments if someone loses their income due to ill health or unemployment, is pushed onto borrowers at the time they take out credit. The commission argues that as a result of this, consumers are often unaware of other options and therefore fail to compare the market and get a competitive price.
Competition Commission's deputy chairman, Peter Davis, said: "The way PPI is sold as an 'add-on' to a loan or other credit product means distributors escape the pressure they should face from competing suppliers. Distributors don't appear to compete much with each other on either price or quality of PPI; neither do they appear to do much direct advertising of PPI to win customers from each other."
Just last month, Which? revealed that as many as two million people have been mis-sold payment protection insurance
as many policies include significant clauses, for example self-employed people are often not covered by PPI.
In response to the latest allegations, David Lipsey, the new chairman of the Financial Services Consumer Panel, said: "PPI, both products and sales, has been a source of inexcusable scandals for too long. The FSA has been tackling the regulated aspects of PPI, and now we see a clearer exposition of the competition issues in today's report. The Consumer Panel greatly welcomes the attention which the Competition Commission has given to this issue."
The Citizens Advice Bureau also welcomed the report, its director of policy, Teresa Perchard, said: "We very much welcome today's report published by the Competition Commission which confirms what we said in our 'super-complaint' that triggered the original investigation that PPI is over-expensive and often unsuitable and that lenders are ripping off, rather than looking after their customers.
"While borrowers are trying to be responsible and seeking peace of mind by taking out PPI policies, many people are pushed into debt by the extra PPI costs." She added, supporting the commission's allegations.
The British Bankers' Association (BBA) took less favourably to the news, arguing that new proposals to the selling of PPI should be carefully considered. BBA's chief executive Angela Knight, said: "The report and discussion document provide some useful food for thought but if some of the recommendations are adopted it could leave customers exposed just as economic conditions are worsening."
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