The Financial Services Authority has acted upon recommendations from the Competition Commission and announced that banks, building societies, mortgage and credit card companies will be prohibited from offering payment protection insurance paid for by a single premium from 2010, due to its high cost and inflexibility. PPI paid in regular instalments is to undergo changes as well, with institutions being forbidden to attempt to sell PPI to customers less than a week after the credit sale. This amendment to the rules is intended to allow consumers who want the insurance to compare different offers.
Seven High Street banks announced in January that they are to stop selling single premium PPI alongside unsecured personal loans by the end of the month. Barclays, Co-op Bank, Lloyds TSB, Halifax, Bank of Scotland, and RBS/Natwest have pledged to only offer regular premium policies. The move has been praised by the Financial Services Authority and consumer groups, although observers such as Shane Craig of Paymentcare.co.uk note that it is likely the banks simply stepped in to pre-empt the Competition Commission’s findings.
A single premium PPI policy means that a one-off payment covers the insurance and is added to the amount already lent to the customer. Interest is then paid on the combined cost of the insurance premium and the loan, raising the overall cost of the policy compared to (already often overpriced) regular PPI policies. Even borrowers who pay the whole cost of the loan and premium back early often have to pay the full cost of the insurance. The Competition Commission’s study discovered that many people were lured into single premium policies by the belief that it would help them obtain credit.
The majority of observers have hailed the demise of what The Guardian’s Lisa Batchelor calls “one of the nastiest but most common financial products”. Louise Hanson, head of campaigns at Which?, the UK’s largest consumer group, said that the banks “have recognised that the party is over for single-premium PPI and the rest should follow suit. It is a fundamentally bad product and one that should be withdrawn from the market altogether”. PPI in general – and single premium PPI in particular – is widely seen as a product which further indebts the very people it claims to help – those who are already in a vulnerable financial state due to recent unemployment or injury.
Single premium PPI does have some defenders, however. The Association of Finance Brokers (AFB) warned that its removal was a dubious move at a time of falling consumer confidence and rising unemployment. “We would urge the Competition Commission not to reduce further consumers’ access to protection products at a time when they are most needed”, the AFB stated.