The latest investigation into the payment protection insurance (PPI) controversy has revealed that the high street banks are pocketing over three quarters of the premiums charged under the terms of the PPI scheme.
The Competition Commission (CC) has found that consumers shelled out a phenomenal £4.4billion in premiums on PPI last year, majority of which went straight back into the banks and other financial institutions that offer the cover.
The interim report carried out by the finance watchdog has also found that PPI costs were at times higher than interest rates charged on loans and is now demanding that the finance industry present its books for scrutiny in order to ascertain the total amounts paid out by customers.
More than 90 per cent of PPI sold in the UK last year was personal loan PPI, credit card PPI or mortgage PPI with the whole market totalling a figure of £5.35 billion.
CC Deputy Chairman Peter Davis comments: "The evidence we have seen suggests that the cost of PPI is in some instances higher than the interest paid on loans. We have found typical commission rates of 50 to 80 percent on personal loan PPI and credit card PPI, and around 40 to 65 percent on mortgage PPI."
PPI is sold to customers taking out loans, applying for credit cards or mortgages to give added peace of mind by guaranteeing repayments in the event that of sickness or unemployment. However, PPI has been sold to some customers who are not even eligible and therefore left with no cover at a time when they need it most. Also there have been cases of applications being refused unless cover is taken out.
The reality is that the cost of the PPI policies sold by banks, retailers and car dealers can cost as much as five times more than similar cover from an insurance firm or the Post Office.
Sales of PPI are now under investigation by the CC, the Office of Fair Trading and the Financial Services Authority after an increasing amount of customers complained of being mis-sold policies. The findings of the CC’s ongoing investigation will be presented in May 2008.
It is now hoped that people considering taking out insurance on loans or credit will shop around to find the most suitable deals from a range of providers rather than just opting for the policy offered in the first instance.
Find out about being mis-sold payment protection insurance
© Fair Investment Company Ltd