Watchdog Reveals Loan Insurance Rip Off For UK Consumers

Wed, 07 Nov 2007

Millions of UK consumers often pay more for personal-protection insurance (PPI) on their loans and mortgages than the interest on the debt itself, according to a report published by the Competition Commission .

The CC’s damning report highlights a lack of real competition in the market, following a nine-month long investigation into the multi-billion pound industry.

The Office of Fair Trading (OFT) said that it believed consumers were paying at least £1 billion more than they should for the insurance .

PPI policies, usually sold alongside loans and credit cards, car finance and occasionally mortgages, are designed to offer peace of mind that repayments will be covered in times of crisis, such as illness or unemployment .

However, they have come under fire from financial industry bodies in the UK following last month’s discovery by the Financial Services Authority (FSA) that more than two-thirds of banks and finance companies were failing to explain what the policies cover, how they work and what they cost.

CC deputy chairman Peter Davis, who is heading the inquiry, said: "After examining a substantial amount of evidence, we think there are some areas that we need to explore further..."

"The evidence we have seen suggests that the cost of PPI is in some instances higher than the interest paid on loans ."

Davis added: "Consumers buying a distributor's product are relatively price-insensitive when they consider buying PPI ."

"Distributors might face little substantive competition when supplying PPI to those people who buy their own credit product."
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