Ban On Payment Protection Insurance Selling When Loans Are Arranged

The Competition Commission has instigated a provisional ban on the selling of Payment Protection Insurance (PPI) at the same time that a loan is been taken out.

PPI has been taken out by many borrowers to protect the loan payments if a change in circumstance means that they can no longer meet his or her repayment responsibilities.

However many people discovered that the PPI premiums were expensive and often did not provide sufficient cover when a claim was made. A large number of PPI mis-selling claims resulted, forcing financial regulatory authorities to examine in detail the ways in which PPI is sold.

This ban means that borrowers will now have to find payment protection insurance from another provider, however it allows the consumer to make a more considered choice to ensure that the policy is cost effective and provides sufficient insurance cover.

“The industry should now concentrate its efforts on developing protection products that offer better cover and value for money to its customers.”, advises Which? Chief Executive, Peter Vicary-Smith.

Although PPI products became a lucrative earner for the lenders, their poor reputation has forced many borrowers to remain unprotected when taking out a personal loan. This is explained by Tim Moss, head of loans and debt at moneysupermarket.com, who said:

“There is no doubt that PPI became a ‘cash cow’ for the banking industry – miss-selling was the inevitable outcome of this and consumers lost out as a result. This has led to the product being tainted in the eyes of many consumers who now try and avoid it completely, when in reality many will need some sort of protection in place should their circumstances change.

There are a number of independent providers such as British Insurance who provide PPI products that are not linked to specific personal loans and lenders and therefore meet the new selling constraints.