The Competition Commission is pressing ahead with its planned reforms of the payment protection insurance (PPI) market, in spite of an imminent legal challenge by several banks against its planned intervention.
The Commission today published a draft order setting out how it plans to introduce competition to the multi-billion pound market after finding that businesses that offer PPI alongside credit currently face little or no competition when selling to their customers.
It is now inviting comment from the public on its proposals, which include a point of sale ban on the insurance, a controversial order currently being fought by the industry.
PPI covers repayments on credit products, such as personal loans and mortgages, if the borrower can’t make repayments due to accident, sickness and unemployment, with premiums from the cover estimated at £4bn in 2007.
In January the Commission said the vast majority of the UK’s PPI policies, which currently number more than 12m, are sold at the same time as a consumer takes out a loan.
But the Commission found that this ”point of sale” advantage worked against consumers who were often charged high prices on the insurance, as they were unaware that they could buy from other providers.
It has now proposed a halt on the sale of PPI for seven days following the agreement of a loan, and a ban on single premium policies, where the cost of the insurance is rolled into the loan and interest charged on the combined amount.
Several banks, led by Barclays but with the support of Lloyds TSB, the taxpayer-funded bank, have appealed against the proposed measures, with a hearing before the Competition Appeal Tribunal (CAT) set for September.
In spite of the legal challenge, the Commission said it was pressing ahead with the detailed work needed to put its measures in place.
“By continuing with the necessary preparations like this, we can hit the ground running once the appeal is finalised and we have considered the CAT’s judgment,” said Peter Davis, Inquiry Chairman and CC Deputy Chairman.
“If the CAT supports our findings, taking these steps now will help ensure there is no unnecessary delay in resolving the significant competition issues that we found in this market and in delivering a better outcome for consumers.”
Barlcays and Lloyds, which believes the point of sale ban will be disadvantageous to consumers and widen the ‘protection gap’, said yesterday the consultation would not impact on their appeal.
“We are appealing on certain specific points, not the whole report,” said Barclays.
“We will continue working on the implementation of all of the remedies contained in the Commission’s report as they are applicable whilst the appeal is ongoing. This will have no impact on the appeal.”
Comments on the draft order are now invited by 7 August 2009.
