The Competition Commission has ruled that lenders will no longer be able to sell Payment Protection Insurance (PPI) when they sell a loan and for the following seven days.
Loan insurance has been an easy money spinner for banks and lenders who now face harsh restrictions on how the cover may be sold.
“The ‘point-of-sale’ advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high prices,” said Peter Davis, deputy chairman of the Commission.
Under the new rules borrowers can still approach their lender for loan insurance 24 hours after taking out a loan. However, most borrowers should use this time to search for the most competitive payment protection insurance available from independent suppliers as large savings can be made.
It is estimated that there are more than 12 million Payment Protection Insurance (PPI) polices in force with the vast majority having been sold with personal loans, credit cards and mortgages. Most of these policies will have been sold by the finance company and customers are paying much more than they need to.
The Association of British Insurers (ABI) said the Commission’s plans could leave borrowers without necessary cover.
“The point of sale ban carries significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more,” said Nick Starling of the ABI.
However, loan insurance and payment protection insurance is freely available and policies can be easily bought online. Consumers need to realise there is a need for loan insurance cover and that it is a competitive market with many independent payment protection insurance suppliers seeking new business. Many of these are award winning policies providing consumers with excellent cover and low premiums.
The FSA fined Alliance & Leicester £7m in 2008 for mis-selling payment protection insurance. Staff training was to blame with customers effectively having poor value loan insurance forced upon them.
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