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PPI selling restrictions on the horizon

One of the key drivers of the credit crash was the selling of PPI or Payment Protection Insurance with loans.

PPI was pushed to borrowers at the same time as they were arranging the loan and it was a highly lucrative sale for lenders and loan brokers. In fact many made more profit from the sale of the insurance than they were set to make for arranging the loan. That meant pusy techniques were used on would-be borrowers at a time when they were ill placed to judge the value of the insurance product they were signing up for.

The UK's Competition Commission now wants to ban the sale of PPI at the time of arranging a loan, forcing lenders and brokers to treat it as a separate transaction and giving customers more time to assess its value. Customers were though to have been pressured in to taking the insurance, sometimes believing their eligibility for a loan would be affected if they did not sign up. In many cases the protection afforded by the policies was minimal but it made perfect sense for those selling the product as it guaranteed huge immediate profits.

Barclays is one of the companies that is appealing against the ban which is still just provisional and will not come into place until July this year. Barclays has objected to the ban and the Competition Appeal Tribunal has asked for issues of customer inconvenience to be looked at.

Oddly one area that will not be subject to the ban is the selling of policies to protect home catalogue shopping payments. There is already a big market in claims against PPI mis-selling and millions of pounds of refunds have already been agreed. There are plenty of specialists claim handlers submitting claims on behalf of customers, but the validity of many claims is often badly investigated and do not stand up. The FSA (Financial Services Authority) has already taken action on one form of PPI - the single premium version - and last May instructed loan providers to stop sales of this upfront payment version of the insurance, the premium of which was added to the loan, thereby attracting interest charges too.

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