Payment protection insurance – what have you been sold?


Payment Protection Insurance

“Has anyone tried to take on Barclays? I have a £5100 loan with them, and just looked and my agreement and the PPI is £1938.87. And that’s before any interest is added to the loan!!! “

This is one of a number of requests for help we found on forum sites. This one was at

What is PPI?

Payment Protection Insurance (PPI) is basically a type of insurance.  PPI is a policy taken out alongside mortgages, personal loans, credit cards and when obtaining credit on high value purchases such as cars and furniture.  Retailers may also offer it when customers sign up for a store card.

PPI is designed as a safety net to cover monthly payments. PPI is a sum of money paid out each month to fully cover (or in some cases, cover a percentage of) of the payment due on mortgages, loans, credit cards etc. if a borrower falls into financial trouble due to becoming unemployed, falling ill, having an accident or if the borrower dies before finance is paid off.

PPI is a big money-spinner for lenders, netting some high street banks up to £250 million a year, around 12 million PPI policies are in circulation, with the market worth around £3.8 billion a year.

The problem for consumers

The insurance is sold at the point when you are arranging a loan, and the insurance may not be priced competitively.

The insurance may not be right for you. For example does it cover you if you are self employed?

You may also already have sufficient insurance.

There has been a long running dispute, and Barclays has been at the forefront of the fight to keep selling this insurance. PPI can be useful, but it can be over-priced and unnecessary. Our constant theme is not to buy insurance as part of another transaction, as you will only be offered one policy. You do not have the chance to check the market, nor the small print.

After much consideration it was announced earlier this year that the Competition Commission will go ahead with a ban on the sale of payment protection insurance (PPI) alongside personal loans, mortgages and credit cards, despite a challenge by Barclays. It found that even at the height of the recession PPI providers made big profits from the controversial insurance.

The commission was ordered to reconsider its plans, announced last October, to ban banks and building societies from selling the insurance at the same time as another financial product. Instead they would have to wait seven days before contacting the customer to see if they wanted to buy cover.

The watchdog’s investigation into PPI concluded that businesses offering PPI alongside credit face “little or no” competition when selling PPI to their credit customers. The financial crisis did not fundamentally change the problem, it found. “Even in the depths of the recession following the financial crisis we found that the economic profits of PPI distributors remained significant,” said Peter Davis, the commission’s deputy chairman, who chaired the inquiry.

The competition watchdog today announced that it has provisionally decided that consumers would benefit from the introduction of a point-of-sale prohibition for all forms of PPI, with the exception of retail PPI. It is inviting comments before publishing its final verdict in July. If it upholds its provisional decision, it will move to introduce the full package of measures as “swiftly as possible”.

The ban had been challenged by Barclays, supported by Lloyds Banking Group and Shop Direct Group Financial Services, as disproportionate and not justified by the evidence collected by the commission. The Competition Appeal Tribunal ruled that the commission must investigate whether a ban would inconvenience customers.

After further analysis, including customer surveys, the watchdog concluded that a ban on point-of-sale PPI combined with other measures would bring greater competition and choice and lower prices to the market, and that this would outweigh the disadvantages, in particular the potential inconvenience to some customers.

The Commission’s final decision was announced on 14th October to prohibit the sale of PPI at the same time as a credit or loan as part of its package of remedies to improve competition in the UK PPI market.

Other measures include an outright ban on PPI policies paid for by a single premium and new rules on PPI advertising and marketing to make sure information is easy to understand and compare. Customers will also be given personalised quotes and an annual statement about their PPI policy to encourage them to review their cover.

In addition, PPI providers will be required to provide information to third parties such as the FSA for inclusion in price comparison tables. There will also be specific measures for retail PPI (covering repayments on goods bought via catalogues) which will not be subject to the point of sale ban.

The Competition Commission’s suggested timetable would see the new rules on marketing and the information to be provided to third parties come into force in October 2011. All other elements of the package – including the point of sale ban – would come into effect in April 2012.

First, however, the Commission must carry out a formal 30-day public consultation on its draft implementing order, planned for late November. Assuming the order can be finalised in late February/early March 2011, the Commission will be on course to meet its proposed deadlines.

It is a long road to get things right. Just remember to protect yourself, and ask – what are they selling me, is it fairly priced, and must I decide right now? Do not be pressurised.

Good luck out there.