Payment Protection Insurance boost for consumers

Posted in 'Personal Finance' by Richard Catlin

08 June 2010

Hot on the heels of the Competition Commission announcing that it was pressing ahead with its ban on ‘point of sale’ selling of Payment Protection Insurance (PPI), the FSA has said that it is extending the deadline for consumers to lodge complaints about mis-sold PPI policies.

Barclays, Lloyds and Shop Direct had argued at the Competition Appeal Tribunal that a ban would be detrimental to consumers, as it would prevent many people from taking out cover that they would actually want and need, and instead force them to seek cover elsewhere and independently, but the appeal was rejected.

After a further consultation period, the Competition Commission has maintained its view that PPI selling should be banned at the point of sale.

PPI has earned a terrible reputation in recent years, and a clampdown on its promotion is overdue. Because the cost of insurance is usually added to the total borrowing, it bumps up monthly repayments hugely. What’s more, it was notoriously difficult to make a successful claim because of the small print and in particular because of the use of ‘wait periods’, where typically, until recently, it was a standard feature that cover does not start until 3 months after unemployment or sickness. PPI has again been voted one of the “most useless financial products” by Which? magazine.

An estimated 50,000 complaints have been made to the Financial Ombudsman in the past ten years about PPI, and more good news for consumers came when the Financial Services Authority (FSA) announced that it was extending the deadline in which people can make a complaint about a mis-sold policy.

The FSA has warned lenders that it expects them to have to pay anything up to £2.7 billion in compensation, relating to policies sold in the past 3 years. This is because consumers making claims would never have been able to use the policy, due to a pre-existing medical condition or the fact that they were self employed.

In current market conditions, there are still a small handful of competitive deals to be had on personal loans – Alliance & Leicester offers one of the best deals available anywhere, with a typical APR of 7.8%. Backed by Santander, they’re a reliable and responsible lender. For those with a good or excellent credit rating, Zopa can be a good alternative with rates from 8.6% for larger loans of up to £15,000.

For most people, the cheapest source of loan finance at the moment is available from the Post Office. You need to apply for the Post Office credit card, then use the card to purchase goods or services up to £2,000, then you can switch that to a loan at a market beating 6.6%.