Fool Fights Rip-Off Insurance

A four-year campaign by The Motley Fool has sellers of rip-off insurance policies running scared.

In the world of personal finance, The Motley Fool is firmly on the side of the man in the street. Indeed, in our role as consumer champion, we've done a lot to "amuse, educate and enrich" the public by teaching better money management to millions of people.

In particular, we've waged a four-year war on the providers of rip-off payment protection insurance (PPI). PPI is an optional insurance policy that is sold to borrowers alongside credit and store cards, mortgages, motor finance, personal loans and other financial contracts. In the event that you are unable to work due to an accident, sickness or unemployment, PPI pays your monthly repayments, typically for up to a year. Most policies (with the exception of mortgage PPI) also pay off your debt if you die.

Although PPI appears to offer valuable peace of mind, 99% of policies are complete tripe, because they are massively overpriced, poorly designed, frequently mis-sold, and let policyholders down when they come to claim. All in all, I'd rate PPI as the worst-value financial product ever created, yet lenders make around £5 billion a year by flogging it to unsuspecting borrowers.

One reason why we've been so forceful in our campaign against PPI is that [embarrassed cough] I worked in the PPI market for eleven years -- and saw a lot of naughtiness along the way. Indeed, one reason why I quit my marketing job to become a financial writer was my desire to change the PPI industry from the outside, having completely failed to do so from within.

In March 2003, in an influential article entitled The Perils Of Payment Protection Insurance, I revealed all the nasty tricks of the trade, before urging the Office of Fair Trading (OFT) to investigate the PPI market without delay. Alas, my plea fell on deaf ears and 2½ years went by before Citizens Advice followed up with a super-complaint about PPI to the OFT.

This super-complaint finally spurred the OFT into action, and it began a market study into PPI in April 2006. In October, it signalled its intention to refer the PPI market to the Competition Commission, with its decision due in the first quarter of this year. Now for the bad news: the Commission takes about two years to investigate anti-competitive practices. Hence, any enforcement action or consumer remedies will not arrive until 2009 at the earliest. Aargh!

Then again, the Financial Services Authority (FSA) has already started penalising PPI providers for not treating their customers fairly. The FSA took over regulation of general insurance in January 2005 and immediately grasped the nettle by taking a long, hard look at PPI. To date, it has imposed the following fines on PPI providers:

This week's fine for GE Capital is of special significance to me, because I worked for GE's PPI division from 1994 to 1997. Seeing my former employer fined for its bad behaviour gives me a warm glow inside, because I know that my drive to end this huge scam is finally beginning to pay dividends. Indeed, the rumour is that the FSA is poised to levy million-pound fines on a further ten lenders which have failed to treat their customers fairly. Yippee!

However, as I said above, any action from the Competition Commission will not arrive for at least two years, so here's a handy reminder to keep you from harm in the interim: DO NOT BUY PPI FROM ANY LENDER. If you ignore my warning, I will sneak up on you and pour custard over your head.

For the record, not all PPI providers are bad guys. The Motley Fool has teamed up with SecurityFirst, a leading independent provider of PPI, to provide you with Best Buy cover at an ultra-low price. My own research shows that SecurityFirst policies can cost as little as a tenth of the price of high-street PPI, which is a massive saving.

Finally, I apologise for writing about PPI for the 600th time (and that's not a joke). Although public awareness of this scandal keeps growing by the day, our work is not yet finished. Nevertheless, I feel that we have PPI providers by the throat, so we're going to keep squeezing until they play fair!

More: Use The Fool to get quality quotes for insurance.