OFT to check out malpractices abounding in PPI sector |
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Sat, 10 Dec 2005 01:35
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Some of Britain's credit card companies and large banks could be penalised and would end up paying fines of multimillion pounds as the Office of Fair Trading agreed to investigate on Thursday malpractices in payment protection insurance (PPI) sector.
Citizens Advice lodged a complaint saying that PPI was being made prohibitively expensive and certain financial institutions indulged in mis-selling of policies.
PPI covers under its gamut lot of credit products which include loans, mortgages, credit and store cards in addition to protecting a borrower who is unable to pay owing to circumstances like illness, accident, or unemployment.
OFT said it would conduct a “market study” of PPIs, which each year amount to an estimated £5 billion, in the beginning of 2006.
Citizens Advice carried out a preliminary study which found that some banks and credit card companies were indulging in mis-selling of policies. It also claimed to have found that the PPI claims were being processed slowly and unfairly leaving the hapless consumers to face additional expenses and threats from collectors of debt.
The OFT also agreeing with Citizens Advice said that the way policies were being piggybacked on loans and credit cards “points to a potentially high risk of consumer detriment”.
It has also been found that a quarter of credit card customers and 50% of loan takers buy payment protection policies from their banks.
A Credit Suisse First Boston report released recently found that 10% of gross profits at several banks including Barclays, Alliance & Leicester and Lloyds TSB were courtesy of PPI.
According to OFT officials PPI claims ratios shows that banks are indeed profiteering with 15% to 20% people making claims over life policies, 55.2% for household insurance and 74% for motor insurance.
"PPI is a complex product, often bought almost as an afterthought. Borrowers may shop around for credit, but the complex nature of PPI and a lack of choice mean they are less likely to shop around for PPI. There is a high potential for consumer detriment - our study will look at whether consumers are getting a good deal or not," said John Fingleton, OFT chief executive.
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Which? uncovers PPI futility, asks consumers to look for better cover 