Payment Protection Insurance review faces further delay

Posted in 'Personal Finance' by Richard Catlin

15 March 2010

Better protection for consumers from aggressive sales of Payment Protection Insurance (PPI), and changes to the way that lenders handle complaints are facing another delay.

In 2009 a major overhaul to the regulations governing the way that PPI is sold alongside loans was proposed, and the FSA also announced plans to force lenders to reassess 185,000 previously rejected PPI complaints.

PPI is intended to cover the minimum payments on a credit agreement, should the borrower be unable to meet them due to unemployment, accident, sickness or death. Many consumers come unstuck with the fine print in such policies - such as cover only coming into effect after a ‘wait period’ of 3 months - by which time the underlying loan is most likely to be in default.

Many of the complaints (and subsequent court cases) claimed that the insurance was mis-sold in the first place, with self-employment status or a pre-existing medical condition meaning that the policy would never have paid out. It is estimated that compensation for consumers who have been mis-sold a PPI policy could cost lenders up to £4 billion.

A combination of fierce criticism from lenders and questions over the FSA’s legal powers meant that plans to introduce the changes by the start of 2010 were shelved. Now, the consultation faces a further 6 week delay, with the FSA already forced to scale back its original plans.

2009 as a whole saw record numbers of consumers complain to the Financial Ombudsman Service, with over 150,000 complaints being made in total. The ‘big five’ banks accounted for 57% of complaints.

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