Payment Protection - Mis-sold and Uncompetitive, 19th October 2006

It's been a bad day for the Payment Protection Insurance (PPI) industry, with damning statements issued by both the Financial Services Authority and the Office of Fair Trading concerning mis-selling and lack of price competition that could be ripping off up to 6 million UK consumers. The Office of Fair Trading is considering whether or not to refer the industry to the Competition Commission for investigation, and is seeking views by the 30th November.

The mis-selling of PPI was highlighted last year by the FSA, and a follow up report issued today states that there remains a need for "a significant cultural and behavioural shift around the sales process, to one that promotes the fair treatment of customers" in the industry. The FSA has issued a set of action plans to providers stating what they are now required to do and will be monitoring progress. The action plans insist that customers must be told that PPI is optional and not mis-led into thinking that agreeing to take out PPI will increase their chances of getting a loan (nearly one third of customers think this is the case).

Meanwhile, the OFT, issued a report setting out the case for referral of the industry to the Competition Commission on the grounds that it is unreasonably expensive given the low level of claims made against it and there is little price variation between PPI providers. Some evidence that lenders may be subsidising low headline APR rates for loans by charging excessive amounts for PPI policies is included in the report.