Consumers taking out Payment Protection Insurance (PPI) to cover loans and credit cards have been overcharged by £1.4bn a year according to a study released today by the Competition Commission.
Almost all of the 14 million PPI policies taken out (worth around ¬£5.35bn a year) were sold at the time of taking out credit Рsuch as loans, credit cards or mortgages Рbut many purchasing the cover were unaware that they could shop around Рmeaning little competition in the market and higher charges.
Policies bought separately can cost as little as £2.65 for each £100 covered, whereas some lenders charge up to £28 for the same level of cover.
PPI is designed to cover repayments in the case that the policyholder is made redundant or unable to work because of illness or an accident.
In September 2005, the Citizens Advice charity made a ‚Äö√Ñ√≤super-complaint’ to the Office of Fair Trading, which in turn referred this to the Competition Commission last February.
The Competition watchdog said it was looking at ways to encourage consumers to shop around and providing more information at the point of sale. Suggestions include possibly banning the sale of PPI with credit arrangements and a temporary limit on how much lenders could charge for the cover, or making it compulsory for lenders to tell borrowers that cover can be bought from third-party providers, and including details of the costs in any advertising.
Head of the investigation, Peter Davis, said there were “serious problems” in the market and that consumers were paying for the lack of competition.
“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.
“Most consumers understandably focus on the loan or credit and its APR, and tend to make a snap decision when the PPI product is then offered to them, rather than looking at the true cost of the credit and PPI together, or at the range of PPI products available.
“In fact, many customers simply aren’t aware that they can get PPI elsewhere, potentially for less, and equally others believe that buying PPI from the provider increases their chance of getting a loan.”
Last year, the commission found evidence that in some cases the insurance was costing more than the interest on the loans it was taken out to cover.
The consumer group Which? reported last week that almost 2 million people may have been mis-sold PPI in the past five years.
Doug Taylor, from Which? says: “PPI is generally a bad product, inappropriately sold. We’ve been saying it for 10 years and we’re delighted that we’ve been vindicated.”
If you feel that you may have been mis-sold a PPI policy, please contact Chiltern on 0871 222 2280, as we may be able to help you get your money back.
