Banks drop single premium PPI

by Gill Montia

Story link: Banks drop single premium PPI

Leading High Street banks have finally conceded to pressure over the sale of payment protection insurance (PPI) and will cease selling single premium PPI with their unsecured personal loans at the end of this month.

Alliance & Leicester, Barclays, Co-Operative Bank, Lloyds Banking Group and RBS/Natwest will henceforth offer regular premium PPI instead.

Controversy over PPI sales has been raging for years, with consumer groups claiming that borrowers are regularly mis-sold the insurance and overcharged.

In November of last year, the Competition Commission proposed a ban on the sale of PPI within 14 days of the sale of an associated loan or credit card facility.

The Commission also said it wants an end to the practice of single premiums being incorporated in the cost of a loan, with interest charged thereon.

At the time, the British Bankers’ Association said it was wholly opposed to the proposals as they stood because they could encourage consumers to borrow without the security of PPI.

However, the move away from single premium PPI does acknowledge some of the problems associated with the insurance, when sold by lenders.

Last year the Commission estimated that borrowers were being overcharged for PPI by an average £100 a year.

Worryingly, in its preliminary report on the market, the Commission concluded that earnings from PPI had been used to prop up unprofitable lending.

A study found that the UK personal loans business had suffered from declining profits to the point where in 2006 it appeared to have been loss-making before taking into account income from PPI.

The Financial Services Authority (FSA) has welcomed the move by the banks and says it expects firms still selling single premium PPI to take note of the developments.