| PAYMENT PROTECTION INSURANCE – Some comments resulting from the UK's Competition Commission report on PPI |
From the FTAdviser
FISA: PRICE CAPS ON PPI WILL HARM CONSUMERS
Sharon Flaherty, Magazine: FTAdviser, Published Thursday , July 03, 2008
Banning the sale of payment protection insurance (PPI) at the point of sale of other credit products would "run counter" to the Financial Services Authority's (FSA’s) Treating Customers Fairly (TCF) principles, FISA claims.
FISA, the secured loan industry's self-regulatory and compliance body, has also raised concerns about imposing price caps on policies, the possible ban on single premium PPI and the requirement that borrowers should annually opt in.
The comments are contained in FISA's response to the Competition Commission's (CC) provisional findings about the PPI market in the UK.
Last month, the commission published a report saying that consumers buying PPI in the UK have been overcharged by as much as £1.4bn a year. It added that a range of measures needed to be introduced to increase to competition in the market to put an end to such practices.
FISA said in its response that it was supportive of the commission’s proposals to increase the information available to consumers at point of sale and to make comparison between products easier. But it believes the commission’s response raises a number of issues, most critically that selling PPI at the point of sale of another credit product may be prohibited.
FISA argues that this would disadvantage consumers and was unnecessary, given the existing safeguards that exist within the Consumer Credit Act (CCA).
John Parker, chief executive of FISA, said: "The proposals regarding not selling PPI at the credit point of sale do not take into account the integrated decision that consumers are making at that time.
"An essential part of the decision to take out a secured loan is whether the consumer believes they will be able to continue repaying the loan should they succumb to unemployment, illness or accident. It would be difficult for the consumer to make this integrated decision if there was a time gap between the sale of the loan and any PPI discussions."
Parker added: "Also, separating the point at which advice could be given about the loan and the PPI would appear to run counter to the FSA’s Treating Customers Fairly initiative which ensures the consumer’s specific circumstances are taken into account when they are receiving advice."
The body also believes that imposing price caps on policies at this stage would be an extreme measure given the wide range of remedies proposed by the commission to address the competitive deficiencies in the PPI market.
"The proposed price cap remedy is extreme and rather than increasing competition is much more likely to distort it with firms seeking ways to retain their margins while operating under the cap," Parker added.
"This could result in the scope of cover in policies being reduced which would obviously not benefit consumers.
"We believe that this remedy should be held in reserve to be considered if the series of other measures put forward by the Commission do not correct the PPI market problems in the next 18 months to two years."
The association also said that the requirement that borrowers should annually opt in would cause difficulties with consumers potentially forgetting to opt in increasing the likelihood of lapsed policies.
FISA said this would effectively mean the end of single premium policies because lapse rates would be so high.
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http://www.introducertoday.co.uk/News/Story/?storyid=923&title=FISA_responds_to_competition_commission's_provisional_findings_on_PPI&type=news_features
From Introducer Today:
FISA RESPONDS TO COMPETITION COMMISSION'S PROVISIONAL FINDINGS ON PPI
Thursday 3rd July 2008
FISA, the secured loan industry’s self-regulatory and compliance body, has issued its response to the Competition Commission’s provisional findings about the payment protection insurance (PPI) market in the UK.
Overall, FISA is supportive of the Commission’s proposals to increase and standardise the information available to consumers at point of sale and to make comparison between products easier. However, the response raises a number of issues around the Commission’s potential remedies particularly those which will have the greatest impact on the secured loan sector.
Of greatest concern to FISA are the following:
• The possible prohibition on selling PPI at the credit point of sale. FISA believes this would materially disadvantage consumers and is an unnecessary step given the existing safeguards that exist within the Consumer Credit Act (CCA) which are specific to secured loans and the FSA’s Insurance Conduct of Business (ICOB) rules for PPI.
• The possible ban on single premium PPI and the requirement that borrowers should annually opt-in. FISA believes the proposal that consumers with single premium policies should be able to ‘opt in’ annually will cause difficulties with consumers potentially forgetting to opt in thus increasing the likelihood of lapsed policies. FISA believes this proposal will effectively mean the end of single premium policies because lapse rates would be so high. Yet FISA is strongly of the view that there are categories of borrowers for whom single premium PPI will continue to be the most appropriate form of protection.
• Single premium PPI and early settlement rebates. FISA agrees that when borrowers decide they do not need the insurance cover and cancel the policy they need to get a fair rebate. Many lenders in the broker-introduced secured loan sector have already moved to radically alter their rebate policies to return a far greater proportion of the premium to those borrowers who cancel. FISA believes that market and regulatory forces are already bringing about change in this regard and question the need for mandated minimum terms.
• Temporary price caps on PPI policies. FISA believes the imposition of price caps at this stage would be an extreme measure given the wide range of remedies proposed by the Commission to address the competitive deficiencies in the PPI market.
John Parker, Chief Executive of FISA, commented:
“There is much in the provisional findings from the Commission that FISA is supportive of, however, we believe that a number of the remedies outlined will have a negative impact on product choice, policy cover and borrower protection in the secured loan sector.
“For instance, the proposals regarding not selling PPI at the credit point of sale do not take into account the integrated decision that consumers are making at that time. An essential part of the decision to take out a secured loan is whether the consumer believes they will be able to continue repaying the loan should they succumb to unemployment, illness or accident. It would be difficult for the consumer to make this integrated decision if there was a time gap between the sale of the loan and any PPI discussions. Also, separating the point at which advice could be given about the loan and the PPI would appear to run counter to the FSA’s Treating Customers Fairly initiative which ensures the consumer’s specific circumstances are taken into account when they are receiving advice. In FISA’s view the CCA provisions specific to secured loans, which provide for two consecutive, seven-day consideration periods, and those under ICOB, which allow for a 30-day period during which the policy can be cancelled, provide sufficient safeguards for the borrower.
“We are not aware of any other long-term insurance product which has to operate with borrowers ‘opting in’ to the policy. FISA believes this proposal would effectively mean the end of single premium policies when there is still a considerable group of borrowers, for example, contract IT or construction workers whose income is relatively stable year on year but can be subject to monthly fluctuations, for whom the policies are wholly appropriate because they provide continuity of cover. Therefore, the Commission’s proposal in Option seven to ban the sale of single premium PPI is excessive reducing choice in the market and could be viewed itself as anti-competitive.
“Finally, the proposed price cap remedy is extreme and rather than increasing competition is much more likely to distort it with firms seeking ways to retain their margins while operating under the cap. This could result in the scope of cover in policies being reduced which would obviously not benefit consumers. We believe that this remedy should be held in reserve to be considered if the series of other measures put forward by the Commission do not correct the PPI market problems in the next 18 months to two years.”
To view FISA’s full response to the Competition Commission’s provisional report on PPI, please visit: www.fisa.co.uk and look in the ‘Latest FISA news’ section.
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PPI SCANDAL CAUSED BY LACK OF COMPETITION
Story by: Sharon Flaherty,Magazine: FTAdviser, Published Thursday , June 05, 2008
Consumers buying Payment Protection Insurance (PPI) in the UK have been overcharged to the tune of £1.4bn a year, the Competition Commission (CC) has found.
In its provisional findings in a report published today (5 June), the commission found that the vast majority of the UK’s more than 14 million PPI policies were sold at the same time as the consumer took out a loan, with many unaware that they could buy PPI from other providers.
As a result, the Competition Commission said there was no competitive pressure and the banks, mortgage providers and credit card providers were able to charge higher prices.
Inquiry chairman and Competition Commission deputy chairman Peter Davis said: "We’ve found serious problems with the PPI market and customers are paying for the lack of competition.
"The way PPI is sold as an 'add-on' to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.
"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."
In its report, the Competition Commission has also published a range of measures aimed at increasing competition in the PPI market to improve the information to customers about what they are buying and to make it easier to switch between providers.
The measures could include a possible prohibition on selling single-premium policies, an outright ban on the sale of PPI at the same time as the associated credit product, or even a cap on the prices charged.
Davis added: "Many customers 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."
The findings, however, have not pleased the British Banking Association (BBA), which has said that the proposals need careful consideration.
Angela Knight, chief executive of the BBA, said: "There are some issues that concern us and we shall respond to the discussion document explaining what those concerns are. It's important that customers don't end up finding themselves worse off as a result of unintended consequences.
"The report and discussion document provide some useful food for thought but if some of the recommendations are adopted, it could leave customers exposed just as economic conditions are worsening," she warned.
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FSA LAUNCHES PPI COMPARISON TABLES
Story by: Sharon Flaherty, Magazine: FTAdviser, Published Monday , June 23, 2008
The Financial Services Authority (FSA) has launched free, impartial comparison tables for payment protection insurance (PPI) on its consumer website.
The new tables are designed to help consumers who are thinking about taking out a PPI policy to shop around and identify products that could meet their needs.
Chris Pond, FSA director for financial capability, said: "The FSA is committed to helping consumers make informed decisions about PPI and to shop around more effectively - the PPI tables are a key part of this.
"This is the latest step in a longstanding programme of work the FSA has been carrying out to improve the standards of PPI sales."
The PPI tables, which are updated daily, will feature single and regular premium policies and as well as giving information on the cost of PPI, the tables will provide details of exclusions and how pre-existing conditions are handled.
The FSA's tables were set up in 2001 to provide impartial information to help consumers shop around for financial products. With the addition of PPI there are now tables for eight products including annuities, mortgages and savings accounts.
The work forms part of the FSA-led National Strategy for Financial Capability which aims to find ways to improve the nation’s financial capability and understanding of personal finance.
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TWO MILLION 'INELIGIBLE' PEOPLE MIS-SOLD PPI
Story by: Gemma Westacott, Magazine: FTAdviser, Published Wednesday , May 28, 2008
A third of people who have been sold payment protection insurance (PPI) in the last five years may not actually be eligible for the products.
Consumer watchdog Which? has made this startling claim after research revealed that many consumers who have bought PPI in the last five years are likely to fall foul of at least one 'significant exclusion' that would prevent them from making a successful claim.
The consumer watchdog claims that as many as 2 million policies have been sold to consumers who may be ineligible for cover due to exclusions.
For example, people who are self-employed or on a fixed-term job contract often are not covered by PPI.
Exclusions also apply to many people aged 65 and over, or people who might claim for absences relating to pre-existing medical conditions also may not be covered.
Which? estimates that around 6 million PPI policies (or about a third of the market) were attached to loans at the end of 2006.
Which? personal finance campaigner Doug Taylor said: "We've always known that people were being mis-sold PPI, but we were still amazed to discover the scale of it.
"It appears that salespeople are chasing their commissions, their bosses are chasing profits - where's the sense of responsibility to the customer?"
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BARCLAYS BACKS DOWN ON PAYMENT PROTECTION DRIVE
Story by: Joe McGrath, Magazine: FTAdviser, Published Wednesday , May 28, 2008
Barclays has confirmed it is about to perform a U-turn on its decision to offer loan coupled payment protection insurance (PPI) with its Firstplus second charge mortgage range.
The lender confirmed it will be revising its entire PPI offering, just days before the Competition Commission makes its ruling on the payment protection market.
FTAdviser.com has learned that Firstplus intends to replace the current loan-linked product sold through intermediaries with a suite of around 50 protection products that sit closer to the critical illness and income protection products already available in the wider intermediary market.
Andrew Bond, spokesman for the Barclays division, said the lender is responding to market sentiment and conversations with mortgage brokers have already begun.
He explained: "We have plans in the pipeline to un-bundled our PPI offer, giving customers the options of various combinations of life, accident and sickness and unemployment cover.
"The products specification is still being finalised so we can’t talk about details yet, but we expect to start talking to brokers about the changes in the next couple of months."
In November, the lender had responded to criticism from consumer groups and the intermediary community when it justified its sales tactics to drive payment protection insurance sales through the intermediary community.
The Association of Finance Brokers (AFB) today (28 May) welcomed the move saying that other lenders are likely to follow suit.
Robert Sinclair, director of the AFB, said: "We are aware that a number of lenders and insurers are working together to provide protection products which should more closely address consumer needs.
"The importance of this for both the industry and consumers should not be under-estimated but there is a long way to go. The AFB is encouraging all participants to make this change sooner rather than later." |
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41463 |
| Author(s): |
SCR |
| Publication date: |
04/07/08 |
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Created: 04/07/08. Last changed: 19/11/08.
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