Citizens Advice demands probe into PPI “racket” |
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Tue, 13 Sep 2005 19:05
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Citizens Advice has accused British banks of a £5 billion 'protection racket’. Banks and insurers were mis-selling the payment protection insurance (PPI), the charity said in a 'super complaint' it issued to the Office of Fair Trading (OFT).
The OFT will be required, under consumer law to investigate into the accusations regarding PPI. It will have to respond within 90 days.
PPI, available on credit cards, loans and mortgages is designed to help people repay their debts in the even of an illness or a job loss. However, Citizens Advice said it is “very expensive and excludes many of the most common situations that can lead to debt”. Some very common problems like bad backs are also excluded from the cover of mainstream lenders.
Most policies had unfair age limits and some even denied people who worked on fixed-term contracts and the self employed from making a claim on it.
At its most harmless, it means high cost minimum benefits for those who can afford it; at worst it amounts to making gullible, vulnerable people shell out large amounts of money as premium.
It is also sold to people who hardly need it and most of the people persuaded into buying it, cannot claim on it. The industry has so far sold as many as 20 million PPI policies. Citizens Advice’s super complaint said that PPIs, far from providing security during hard times, only added to the consumer’s debt. In effect, banks were only selling a false sense of security under the name of PPI.
For banks these have proved to be a huge source of profits. Barclays had last year said income from PPIs formed a generous 20 percent of the bank’s profits. Likewise, Lloyds TSB also gains handsomely with 14 percent of its profits coming from sale of PPI policies.
The charity said there was pressing need for an inquiry into this market and it must lead to effective regulation.
On their part, the British Bankers' Association (BBA) insisted that PPIs are completely voluntary. They said people have to decide whether or not the cover matches their specific needs before buying a PPI policy.
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