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PPI: EU supervisor finally issues a Report and an Opinion on Payment Protection Insurance - ECRC finds it had to wait a long time and witness considerable consumer detriment before this day... Now what?

It has taken almost a decade, numerous ECRC stakeholder conferences, and a global financial crisis, for a European financial supervisor to finally produce a report and make a statement like this about a product class that was intentionally constructed and sold to severely compromise consumer value, and have left millions of consumers unknowingly unprotected. Will Member State supervisors analyse their national markets are introduce appropriate regulation, supervision and sanctions? The ECRC partners look forward to a higher value proposition and more sustainable product and service offering for indebted consumers from now on. Below the EIOPA statement.


EIOPA issues Opinion on Consumer Protection Issues in Payment Protection Insurance

With this Opinion in the field of consumer protection, EIOPA recommends national competent authorities (NCAs) to analyse their national Payment Protection Insurance (PPI) markets based on the findings of this opinion. PPI is an insurance product designed to provide coverage for the consumer of a financial obligation generally in the form of a mortgage or a consumer loan repayment, in case they are unable to fulfil a payment. The consumer protection issues surrounding PPI have triggered action from regulatory or supervisory bodies in a number of jurisdictions.

EIOPA acknowledges that PPI products, when properly designed and sold, serve legitimate consumer needs. Yet, EIOPA also notes that, in a number of jurisdictions, significant cases of misselling have occurred, to the detriment of consumers and negatively affecting the reputation of the insurance sector as a whole.  The most frequently arising mis-selling issues for PPI products are eligibility/suitability issues and providing misleading information. In these cases, for example, consumers are either unable to claim benefits, because their individual situation is not covered by the policy, or they have not yet received the necessary information to base their choice on. Moreover, market imperfections, such as the fact that PPI is often sold together with the loan products (cross-selling) or that consumers do not have comparable information, also contribute to distorted consumer choice. NCAs are requested to analyse whether PPI merits (further) investigation and any possible (further) supervisory and/or regulatory action at national level, based on the findings of the opinion. The opinion requests NCAs to provide feedback on their previous activities and on any future actions in this area based on this opinion within six months from today.
Based on the information received from NCAs EIOPA will decide if and what kind of further action is needed at an EU level. 

As EIOPA’s Chairman Gabriel Bernardino explained: “We have observed in certain countries the emergence in the PPI market of business models where market power of certain distributors led to disproportionate levels of commissions, often as high as 80% of premiums paid by consumers. This and other practices have led to considerable consumer detriment and have been subject to regulatory and supervisory action. With this Opinion EIOPA intends to obtain a clear picture of the reality in all the EU countries in order to better protect consumers and promote regulatory and supervisory convergence.”

The text of EIOPA Opinion on Payment Protection Insurance and the Background Note can be viewed on EIOPA website: https://eiopa.europa.eu/publications/eiopa-opinions/index.html


Background Note:

Contents
Part I – Comparative analysis of consumer protection issues regarding PPI........ 4
1. Some characteristics of PPI products .................................................... 4
1.1. Risk coverage and underlying loan products ..................................................... 4
1.2. Use and some characteristics of PPI ..................................................................... 5
2. Consumer protection issues with PPI .................................................... 6
2.1. Issues in the distributor$customer relationship (mis$selling) ..................... 6
2.2. Market imperfections ................................................................................................... 7
2.2.1. Distorted consumer choice due to cross$selling ....................................... 7
2.2.2. Group insurance contracts ................................................................................ 8
2.2.3. Information asymmetry ..................................................................................... 9
2.2.4. Product design issues .......................................................................................... 9
3. Examples of regulatory and supervisory actions for better functioning
markets in PPI ......................................................................................... 11
3.1. Types of market intervention ................................................................................. 11
3.2. General measures against mis$selling ................................................................ 12
3.2.1. Measures against selling to unsuitable consumers ............................... 12
3.2.2. Measures against misleading information ................................................. 13
3.3. Measures against market power arising from cross$selling ....................... 14
3.4. Comparability of information.................................................................................. 16
3.4.1. Comparability of offers ..................................................................................... 16
3.4.2. Comparison tools ................................................................................................ 16
3.5. Product regulatory measures ................................................................................. 17
Part II –Case studies ................................................................................ 18
4. Rules affecting PPI in the Consumer Credit Directive ............................ 18
5. PPI in France ................................................................................... 18
5.1. PPI market specialities in France .......................................................................... 18
5.2. Regulatory and supervisory action in France ................................................... 19
6. PPI in Hungary ................................................................................ 20
7. PPI in Ireland .................................................................................. 20
7.1. PPI market specialities in Ireland ......................................................................... 20
7.2. Market problems in Ireland ..................................................................................... 21
7.3. Regulatory and supervisory actions regarding PPI ........................................ 22
7.3.1. Consumer Protection Code .............................................................................. 22
7.3.2. Supervisory reviews of PPI in Ireland ......................................................... 22
7.3.3. Consumer Complaints ....................................................................................... 24
8. PPI in Italy ...................................................................................... 24
8.1. PPI market specialties in Italy ............................................................................... 24
8.2. Market problems in Italy .......................................................................................... 24
8.3. Regulatory and supervisory actions regarding PPI ........................................ 25
9. PPI in the Netherlands ...................................................................... 27
9.1. Market issues in the Netherlands ......................................................................... 27
9.2. Regulatory and supervisory action in the Netherlands ................................ 28
9.2.1. Thematic work on PPI in 2009$2010 ........................................................... 28
9.2.2. AFM investigation on advisor fees for consumer loan PPI .................. 29
10. PPI in Portugal ................................................................................. 30
10.1. Guidelines on PPI compliance ................................................................................ 30
10.2. Expected effects and planned steps .................................................................... 31
11. PPI in Spain .................................................................................... 32
11.1. PPI market specialities in Spain ............................................................................ 32
11.2. Regulatory and supervisory actions regarding PPI ........................................ 32
11.2.1. PPI requirements for consumer credits ...................................................... 32
11.2.2. PPI related to mortgages ................................................................................. 33
11.2.3. Self regulation by the Insurance Association (UNESPA) ..................... 34
11.2.4. Supervisory actions ............................................................................................ 34
12. PPI in the United Kingdom ................................................................ 35
12.1. PPI market in the United Kingdom ...................................................................... 35
12.2. Description of market problems ............................................................................ 35
12.3. Regulatory / Supervisory responses ................................................................... 36
12.4. Recent market developments ................................................................................ 37
References .............................................................................................. 39


ID: 48341
Publication date: 28/06/13
   
URL(s):

EIOPA Opinion on PPI (June 2013)

EIOPA Background Note on PPI (40 pages, June 2013)
 

Created: 28/06/13. Last changed: 28/06/13.
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