Consumers could save more than £1bn a year

Recent reports from the Office of Fair Trading (OFT) and The Financial Services Authority (FSA) on the sale of Payment Protection Insurance (PPI) could mean a reform in the market – and a massive saving of over £1bn for consumers.

PPI has received a lot of negative press, with horror stories of mis-sold policies and shabby sales practices. In some cases, policies have been sold by High Street banks and insurers to customers who are not eligible (such as the self employed or those that have had a previous illness).

The OFT is proposing to refer the PPI market to the Competition Commission in a bid to introduce measures such as separating the sale of PPI policies from the sale of credit.

The reports were critical of the PPI market, which is worth £5.5 billion a year and which has 20 million policies in force. The FSA’s report highlighted key areas that need addressing including:

• the lack of clear information when policies are sold, with some consumers not realising that cover is optional
• details of the true cost of PPI not being provided
• consumers not being made fully aware of exclusions on the policy
• customers are often sold single-premium PPI policies, which are more expensive than regular premium cover
• whether new rules are needed to govern sales of PPI

Unfortunately, the earliest any changes will be made will be at the end of 2007. The FSA will not announce its decision until early next year on what it will be implementing, with any changes put into service by the end of 2007 at the earliest.

Speaking to the Mail on Sunday newspaper, Vince Cable MP, Liberal Democrat Treasury spokesman, said: 'The principle of PPI is a good one, but it has been turned into a cash cow by greedy banks. Consumers are being ripped off.'

Simon Burgess from independent PPI provider Britishinsurance.com says: “The sooner that dishonourable lenders are brought in line by regulators and legislators, the better for consumers. “

Until a decision is made and legislation put in place, customers taking out credit are urged to shop around for PPI and buy a standalone product from one of the specialist PPI providers.