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Banks are creaming off up to 80% of the premiums charged on controversial loan protection insurance, the Competition Commission said yesterday. Avoid the rip-off by finding a stand-alone policy. They can be 85% cheaper than the banks. >
Consumers paid £4.4bn in premiums on Payment Protection Insurance (PPI) last year, the watchdog said, with the bulk of it hoovered up by banks, building societies and other finance companies.
The commission is taking the unusual step of using its legal powers to force the industry to open up its books, accusing banks of being too slow to reveal how much they are making from this loan 'protection racket'.
Sales of PPI are being investigated by the commission, the Office of Fair Trading and the Financial Services Authority amid claims of rip-offs and mis-selling on a huge scale.
PPI is sold to offer peace of mind to those taking out loans or using credit cards, guaranteeing repayments in case of sickness or unemployment.
However, the cost of the policies sold by banks, retailers and garages can be up to five times higher than similar cover from an insurance firm or the Post Office.
Some are offered a policy even if they are not eligible, which means they get nothing when they fall on hard times.
The watchdog said: 'We have found typical commission rates of 50 to 80% on personal loan PPI and credit card PPI, and around 40 to 65% on mortgage PPI.'
The gravy train does not end there. Banks also take 90% of any profits when claims on PPI policies are lower than expected.
Acting Liberal Democrat leader Vince Cable said: 'The principle of PPI is a good one but it has been turned into a cash cow by greedy banks abusing a deeply uncompetitive market. Many consumers are being ripped off.'
Citizens Advice said: 'Every day CAB deal with more than 6,500 new debt problems and it is scandalous that insurance policies, which should be designed to prevent debt, are in many cases increasing people's debt.' Lloyds-TSB sells more PPI policies than any other company, followed by Halifax-BoS, Barclays, RBS-Natwest, card company MBNA and Abbey.
Consumers often feel under pressure to buy PPI to qualify for credit. But the commission found evidence of 'prices being higher than competitive levels when PPI is sold alongside a credit product'.
PPI policies sold by banks are massively more expensive than stand alone cover sold by independent insurance companies.
The commission pointed to research by consumer group Which?. To cover a five-year £7,500 unsecured personal loan, premiums on the most expensive PPI policy worked out at £3,000 - a mark-up of 171% on the cheapest option. Investigators have found widespread evidence of PPI misselling. That led the Financial Services Authority to fine GE Capital Bank, which offers store cards for the likes of Topshop and Laura Ashley, £610,000 earlier this year.
Other fines have been imposed on Capital One and Home and County Mortgages Ltd.
The British Bankers Association denied its members were dragging their feet in providing information to the commission.
A spokesman said: 'Our members are fully cooperating. In some cases there may have been a delay if information is complex and not readily available.'
The commission's provisional findings are due in May. It may ban banks from selling PPI. Other stories:
How are you, long time no see. and your have returned with really good information for us all. thanks.
Take care and don't be a stranger, how did your claim go, with, was it london mortgage company.
If any of my posts are helpful, please feel free to click my scales. All information is given as my opinion only, based on my own personal experiences. I have no legal training, but have educated myself in aspects of consumer legislation. My motto "NEVER GIVE IN, NEVER SURRENDER", THERE IS A WAR ON YOU KNOW
very interesting post. the article leaves me feeling numb though. im astounded that they have got away with it for so long - and infact are still getting away with it.
heres to the day when the banks are banned from being allowed to sell PPI (cant see it happening, but can jolly well hope).
Banks take 80% cut of loan cover charges
he Competition Commission said yesterday. Avoid the rip-off by finding a stand-alone policy. They can be 85% cheaper than the banks. >
-TSB sells more PPI policies than any other company, followed by Halifax-BoS, Barclays, RBS-Natwest, card company MBNA
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