Bank fights back over Payment Protection Insurance

Posted in 'Personal Finance' by Richard Catlin

02 November 2009

Banks could win back the right to sell Payment Protection Insurance (PPI) to customers alongside loan applications, after the Competition Appeal Tribunal ordered a further review into the ban imposed by the Competition Commission.

The point-of-sale ban on PPI was due to be introduced in 2010 as part of a group of measures aimed at encouraging competition and giving consumers more opportunity to shop around for insurance, should they require it.

However, following an appeal by Barclays, in conjunction with the part state-backed Lloyds TSB, the Competition Commission was told that it needs to present further evidence that a ban is truly in the best interests of consumers. Barclays argue that the ban actually limits, rather than improves consumer choice.

Essentially, the Tribunal said that the Competition Commission had failed to properly consider the loss of convenience to some consumers by not being able to take out PPI at the point of sale. Because the proposed ban is only part of a wider range of measures though, and is not due to come into effect until next year, there are likely to be more twists and turns before a definitive decision on PPI selling is reached.

The Competition Commission must now resubmit its application for a ban with better supporting evidence as to why a point-of-sale ban is in the best interests of consumers.

Rising unemployment bought about by the recession could well have played a part in the Tribunal's decision, with more people worried that unexpected redundancy could leave them unable to meet repayments on credit agreements.

PPI covers the repayments on credit facilities, should the borrower be unable to meet repayments due to unexpected unemployment, accident, sickness or death. Many consumers come unstuck with the fine print in such policies however - such as cover only coming into effect after 3 months - by which time the underlying loan is most likely to be in default.

The Tribunal's decision to ask for further evidence in support of a point-of-sale ban does not have a bearing on the separate issue of PPI mis-selling claims that we have reported on recently.

Consumers who do get into financial difficulty – whether they are covered by PPI or not – can get free, independent advice through our Debt Advice Centre.