Competition Commission bans point of sale PPI

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Currently, over 90% of the PPI sold in the UK is sold with borrowing products such as credit cards, high street loans and mortgages.

The commission originally advocated banning the sale of payment protection insurance with credit back in October but, following a challenge from Barclays, it was forced to reconsider the evidence in light of the fact that the ban may inconvenience consumers.

Now the Watchdog has provisionally decided to continue with the ban, though the final decision won't be made until July.

The body looked at a variety of research to come to its conclusion but eventually decided that more competition and, therefore, more consumer choice would outweigh the inconvenience of having to buy another product on a separate occasion.

"We found that many customers would place very significant value on being given the time and space to choose the right PPI product or indeed to decide that PPI is not right for them," said Peter Davis, inquiry Chairman and Competition Commission Deputy Chairman.

"Overall, we concluded that PPI providers are overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale."

What is PPI?

PPI is insurance which ensures that a lender will still get their money even if you're unable to pay them back because of illness, loss of income or death.

Most payment protection insurance policies (read the full guide) cover credit cards, personal loans or mortgages.

Thousands of consumers claim that they were either unaware they were buying PPI with a financial product or were misled on how the product worked, in many cases resulting in the purchase of a product which they could never have claimed on.

The ban on point of sale PPI peddling doesn't apply to the small sector of the market known as retail PPI, however, just financial products.

The retail PPI market covers large purchases bought on credit, such as cars, and shopping through home catalogues.

In that case, the Competition Commission concluded that it would need further evidence before making a final decision.

In the case of cover taken out on retail products, one imagines, customers will be far less likely to search for alternative providers of PPI since home shopping seems a much less serious commitment than a personal loan.

Hikes in credit card interest rates were banned in 2009 for a similar reason: regulators ruled it was unfair for consumers to enter into a commitment which contained terms they couldn't reasonably understand.

Why did Barclays object?

The PPI market is worth £3.8 billion a year so it's fair to say that most banks have been taking an interest in this case.

Barclays - who were supported by Lloyds Banking Group and Shop Direct Group Financial Services - first claimed that the Competition Commission shouldn't be allowed to impose a ban at all.

The banks launched a whole raft of objections at the commissions only one of which (the suggestion that inconvenience could actually damage competition in the longer term) was upheld by the appeal.