|UK PAYMENT PROTECTION INSURANCE (PPI) INVESTIGATION - As UK indebted households face difficult times ahead, the UK Competition Commission concludes that these insurance products have not been sold in a competitive manner and should not be sold as linked products. That lucrative commissions have been flowing back to the banks is one thing, a more pressing urgency is now to ensure that these insurance covers actually kick in when vulnerable consumers find themselves unemployed as a result of the downturn.
|The remedies proposed by the Commission include:
1) Banning the sale of PPI to a customer within 14 days of taking out a loan.
2) A ban on the sale of single-premium PPI policies.
Industry has voiced its disappointment at the Competition Commission’s provisional decision on remedies for the PPI market saying that vulnerable people will now go unprotected and that it will raise the cost of credit. We believe that under such changes consumers will remain protected if they choose to be and at a price they are happy with!
The Commission has invited comments on these remedies by 4 December 2008. The final report, which will include the final decision on these proposed remedies, is now due out in mid-January 2009.
ECRC is also keen to here from all partners that want to suggest and develop features that will make such payment protection insurances more suitable in preventing the potential fall into overindebtedness.
THE PROPOSED PACKAGE OF REMEDIES INCLUDES:
- A prohibition on the sale of single-premium PPI policies;
- A prohibition on the sale of PPI within 14 days of the credit point-of-sale (POS). However, 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;
- All PPI providers must provide certain information and messages in PPI advertisements (including the price of their PPI and that PPI is optional and available from other providers);
- A requirement on distributors to advertise PLPPI (personal loan) and SMPPI (second-charge mortgage) alongside their respective credit advertisements;
- All PPI providers must 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;
- The provision of an annual statement for PPI customers, including information similar to that provided in the personal quote.
Full News Release from the Competition Commission
33/08 13 November 2008
PPI—PROVISIONAL DECISION ON REMEDIES
The Competition Commission (CC) has today published for consultation its proposed
remedies designed to increase competition in the Payment Protection Insurance (PPI)
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
- A requirement on distributors to advertise PLPPI (personal loan) and SMPPI (second charge
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
- 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
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: PPI@cc.gsi.gov.uk or write to:
The Inquiry Secretary
NOTES FOR EDITORS
1. The CC is an independent public body, which carries out investigations into mergers,
markets and the regulated industries.
2. PPI covers repayments on credit products if the borrower is unable to do so due to loss
of earnings as a result of accident, sickness, unemployment or (in many cases) death.
PPI is sold to cover a variety of financial products, but over 90 per cent of PPI sold in
the UK in 2007 was either: PLPPI, credit card PPI, mortgage PPI or SMPPI.
3. Enquiries should be directed to Rory Taylor on 020 7271 0242 or firstname.lastname@example.org.
4. The members of the PPI inquiry group are Peter Davis (Group Chairman and CC
Deputy Chairman), John Baillie, Christopher Bright, Professor John Cubbin and Richard
5. The OFT referred the PPI market for investigation by the CC in February 2007, following
its initial study into the sector in response to a ‘super-complaint’ from Citizens Advice.
Under the Enterprise Act 2002, the OFT can make a market investigation reference to
the CC if it has reasonable grounds for suspecting that competition is not working
effectively in that market.
6. Following such a reference, the CC carries out a comprehensive investigation, so that it
can ultimately come to a final decision about whether any features of the market
prevent, restrict or distort competition and, if so, what action might be taken to remedy
7. Market investigation references are intended to focus upon the function of a market as a
whole rather than the conduct of a single firm in a market. If the OFT has concerns
about the conduct of a single firm or firms that have engaged in anti-competitive
agreements, it will first consider whether those actions infringe the Competition Act 1998.
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