Crackdown spells the end for Payment Protection Insurance

One of the biggest revenue streams for UK banks is under threat as the Competition Commission demands curb on selling Payment Protection Insurance (PPI).

A provisional report published by the Commission in November 2008 laid out a number of recommendations aimed at ‘cleaning up’ the PPI industry.  In anticipation of a full ban, a number of leading UK financial institutions have recently announced they will stop selling single premium policies with unsecured loans by the end of January.

Although many banks are warning that the loss of profits from PPI will result in more expensive loans for consumers, as they will be less able to offset the cost of offering the most competitive loan rates.

Jon Pain of the Financial Services Authority is pleased lenders are reviewing their position within the PPI market.  He agrees that there is still a place for PPI policies, which cover debt repayments in the event of the holder being ill, unemployed or unable to work, ‘as long as the policy is sold appropriately’.

PPI policies have been widely mis-sold to borrowers in the UK, and have been a sticking point with consumer groups such as Which?, who are currently running a campaign to help those who have been mis-sold policies to reclaim their money.

Despite the banks’ threats of potentially higher interest rates on loans due to loss of profits, the implications of the move are positive. In these uncertain economic times banks must start responding to what consumers actually want and need.  As Louise Hanson of Which? said, ‘ people need to protect their finances more than ever so providers should be developing products that meet consumers’ needs and offer value for money’.*

*Timesonline.co.uk