In its provisional findings report published in June 2008, the CC concluded that distributors of PPI—such as banks, mortgage providers and credit card providers—face little or no competition when selling PPI to their credit customers.
The vast majority of the UK’s more than 13 million PPI policies are sold at the same time as a consumer takes out a loan or other type of credit and the CC found that many consumers are unaware that they can buy PPI from other providers. Consumers rarely shop around to compare prices and terms and conditions of PPI policies and rarely switch PPI providers.
This ‘point-of-sale’ advantage makes it difficult for other PPI providers to reach credit providers’ customers and in the absence of such competitive pressure, PPI distributors are able to charge high prices.
Along with its provisional findings report, the CC published a Notice which outlined a number of possible remedies designed to increase competition in the market. Since then the CC has been collecting evidence regarding those possible remedies from PPI providers, consumer groups, the Financial Services Authority (FSA), the Office of Fair Trading (OFT), and other interested parties.
Following a series of hearings and a considerable amount of analysis, the CC is now proposing a package of measures which it considers will be practical and effective in increasing competition in the market to the benefit of customers. These are set out in full on the CC website at www.competition-commission.org.uk.
The proposed package of remedies includes:
• A prohibition on the sale of PPI by a distributor to a customer within 14 days of the distributor selling credit to that customer. This will address the point-of-sale advantage, and give the customer more opportunity to compare products and providers, in turn encouraging greater competition between providers. Whilst the distributor cannot recontact the customer for 14 days, customers will be able proactively to contact the distributor and purchase a PPI policy 24 hours after the credit sale.
• Credit providers will be required to provide a ‘personal PPI quote’, which will clearly state the cost of the PPI policy individually and when added to the credit product. If this is not given at the point of sale, the credit provider must do so if they subsequently contact the customer to offer PPI, and the prohibition period starts from the date on which the personal PPI quote is provided to the customer.
• A prohibition on the selling of single-premium PPI policies, which act as a barrier to customers switching and the costs of which are difficult to compare with other PPI policies. The CC considered whether mandating pro-rata rebates on single-premium policies would be a sufficient remedy, but has concerns about such a remedy which led it provisionally to conclude that it would not be sufficiently effective.
• A requirement on all PPI providers to provide certain information and messages in PPI advertisements (including the price of their PPI, expressed in a common format of monthly cost per £100 of monthly benefit, and that PPI is optional and available from other providers).
• A requirement on distributors to advertise PLPPI (personal loan) and SMPPI (secondcharge mortgage) alongside their respective credit advertisements.
• A requirement on all PPI providers to provide certain information on PPI policies to the FSA and a recommendation to the FSA that it uses this information for its PPI price comparison tables.
• A requirement on all PPI providers to provide an annual statement for PPI customers, including information similar to that provided in the personal quote, to encourage customers to review their policy annually and make it easier for customers to decide whether to switch.
The proposed remedies have been published so that interested parties have a further opportunity to comment before the CC publishes its final report (currently planned for mid-January 2009). This report will include the decision on the remedy measures to be introduced.
The CC last month published its separate provisional findings on retail PPI, a small part of the overall PPI market relating to protection taken out on repayments for shopping through home catalogues. The report concludes that, as with other types of PPI policy, retail PPI is highly profitable for distributors and there is little competition between providers on price and other factors, limited ability for customers to search for alternatives or switch products and a considerable point-of-sale advantage for the providers. The CC continues to work on its provisional decision on remedies for retail PPI.
The CC continues to liaise closely with the industry regulator, the FSA, which takes the lead on regulating sales practices and tackling mis-selling, as well as the Financial Ombudsman Service (FOS), which deals with consumer disputes. The CC’s focus has been on examining whether there is effective competition in the market as a whole. In provisionally deciding to take action to improve competition between companies selling PPI, the CC aims to enhance the incentives for distributors not only to compete on price but to compete on non-price factors such as quality and service.
The CC would like to hear from all interested parties about the document by 4 December 2008.
To submit evidence, please email: [email protected]
Market reaction:
‘PPI ban is devastating news for borrowers', says ABI
The Competition Commission's provisional decision to ban the sale of Payment Protection Insurance (PPI) when people take on additional financial responsibilities will leave millions of consumers unprotected.
With a 69% increase in recently unemployed customers claiming on their PPI, news of today's ban will result in significant financial hardship for many individuals and their families.
A ban would mean that borrowers will be unable to take out the protection they need in a straightforward manner, in the very economic circumstances when they are likely to need it the most. Under these proposals, customers will not be allowed to arrange loan protection with their lender when they take on credit, even if they ask.
Responding to the news about the ban, Nick Starling, the ABI's Director of General Insurance and Health, said: "This is devastating news for consumers. By effectively denying consumers PPI in the very economic climate that they need it most, the Competition Commission has got this completely wrong. Unemployment claims on PPI policies have grown by 69% in the last twelve months, showing just how valuable this cover is proving to be.
"The Competition Commission still has the opportunity to rethink its proposals before publishing its final report in January. It is essential that it does so. We understand that poor sales practices are never acceptable and we will continue to work with the Commission to resolve the outstanding issues in the PPI market. However, if the Commission continues down this path it will kill the PPI market altogether, leaving millions of consumers with no protection at all."
FLA highly disappointed with commission's PPI recommendations
The Finance and Leasing Association, which represents a wide variety of lenders who also sell payment protection insurance (PPI), today voiced its disappointment at the Competition Commission's provisional decision on remedies for the PPI market.
The remedies proposed by the Commission include:
Banning the sale of PPI to a customer within 14 days of taking out a loan.
A ban on the sale of single-premium PPI policies.
FLA Director General Stephen Sklaroff said: "Preventing customers from buying PPI when they take out new credit will mean that many vulnerable people go unprotected just when unemployment is rising sharply. The loss of single premium PPI will also result in worse terms for many customers. The Commission's proposals, which will raise the cost of credit, have ignored the Prime Minister's concerns about rising interest rates. We call on the Commission, even at this late stage, to reconsider."
Paymentcare.co.uk reacts:
Borrowers will finally get the financial freedom they so desperately need following the Competition Commission’s long-awaited proposal to ban PPI at the point-of-sale and single premium PPI, says independent PPI provider Paymentcare.co.uk.
“The major obstruction to consumers getting a fair deal on payment protection insurance has finally been blasted out of the way – a decision that should have been made long before now but one that is very, very welcome,” says Paymentcare.co.uk’s Shane Craig.
“Lenders’ ability to sell their own PPI at the same time as a loan has been one of the single most unfair financial practices of recent years and has cost consumers billions of pounds.”
A survey conducted by Paymentcare.co.uk last year revealed that, on average, customers had saved over £2,700 by choosing the independent provider’s PPI instead of their lender’s own – a clear indication of who’s been the winner here.
“This is money that borrowers will never get back. Some determined consumers with the time and energy to pursue the matter will no doubt be successful in reclaiming PPI charges that are deemed to have been unfair, but for the majority it’s a write-off.
“And it’s not just those who have paid way over the odds for High Street PPI who have lost out,” says Craig.
“There’s also all the borrowers who wanted protection for their loans but didn’t take it because they couldn’t afford their lender’s premiums and didn’t realise there was an affordable independent alternative. Those who subsequently lost their income and fell into arrears as a result will have suffered unnecessarily, some possibly on a major scale.”
This is terrible timing for lenders who are already struggling to cope with huge credit crunch losses, not to mention the potential iceberg of the High Court ruling on bank charges lurking ahead.
The downside of this decision may be that lenders will raise their loan rates to compensate for the loss of earnings from PPI sales, but the consumer remains the winner from today’s decision, says Craig.
“Now that this major hurdle has been cleared the next crucial message to get across to borrowers is that PPI is – and always has been – an essential personal finance product.
“In today’s troubled times borrowers need to be more careful than ever before that they have a financial safety net in place. With unemployment now at its highest level for a decade the spectre of redundancy is ever-present and isn’t choosy who it affects,” he adds.
“At last, borrowers will be protected by the Competition Commission’s decision from being unfairly treated. The next step on this long and winding road is for them to be made aware that they have the choice to buy PPI from an independent source.”
More reaction will be added as it is received ...
