Loan cover 'rip-off costing customers 1.4bn every year'

Insurance sold with loans and credit cards is ripping off customers to the tune of £1.4billion a year, a watchdog said yesterday.

Banks, finance companies and retailers are alleged to have routinely overcharged the millions who buy payment protection.

The Competition Commission said its investigation into the industry could lead to a cap on exorbitant premiums. It also said banks might be barred from selling payment protection as an 'add on' to a loan.

Finance giants tout the insurance as a safety net to cover repayments if a customer falls ill or lose their job.

More than 14million policies have been taken out in tandem with loans, mortgages, credit cards, store cards and car finance. Yet the premiums can be six times more costly than deals available from independent firms.

Protection insurance is also being sold without proper eligibility checks.

It has been taken out by pensioners, the long-term sick and seasonal workers, all of whom who would be disqualified. Peter Davis, deputy chairman of the commission, said: 'We've found serious problems with the PPI market and customers are paying for the lack of competition.

'The way PPI is sold as an "add-on" to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.

'Distributors don't appear to compete much with each other on either price or quality of PPI.

'Many customers simply aren't aware that they can get PPI elsewhere - potentially for less.' Research carried out by Moneyfacts.co.uk, a personal finance website, shows that some banks impose huge mark-ups on payment protection.

Payments on a £7,500 loan repaid over five years can be as high as £2,928. Yet similar cover from a specialist firm can cost as little as £465.

Expensive: 'Many customers simply aren't aware that they can get PPI elsewhere, potentially for less.'

The commission found that some banks are offering artificially low loan rates, only to sting customers with massive protection payments. Doug Taylor, of consumer group Which?, said: 'PPI is generally a bad product, inappropriately sold.

'We've been saying it for ten years and we're delighted that we've been vindicated.'
The Financial Services Authority has fined a number of companies over the mis-selling of payment protection policies, including HFC Bank.

The British Bankers' Association maintains that customers value payment protection.
Angela Knight, its chief executive, said: 'If some of the recommendations are adopted, it could leave customers exposed just as economic conditions are worsening.

'The industry has moved on since the Competition Commission research has been carried out. Customers are better able to shop around.'

• Do you think you have been mis-sold PPI? Information and advice on how to claim a refund is available from the Daily Mail's sister website www.ThisisMoney.co.uk