Don't Be Bullied Into Buying This

Find out why applying for a new credit card made Serena Cowdy so angry!

I recently took out a new Virgin Money credit card. I was pleased with the 0% balance transfer deal I was offered, but one aspect of the application process really hacked me off.

Can you guess what it was? That's right - the pressure I came under to buy payment protection insurance (PPI).

My recent experience has got me thinking that the PPI hard sell on credit cards might be getting even worse. In the course of my application, I spoke to call centre staff on five different occasions. EVERY SINGLE TIME someone tried to flog me PPI - despite the fact that the first time I spoke to someone, I asked for my refusal to be put on record.

I understand that staff bonuses often rest on PPI being sold. And I'm sure they're under considerable pressure to get rid of the stuff. But when I was asked - for the third time - to give the exact reasoning behind my refusal, I did get a bit cross.

It may have been a one-off. But I was appalled to find myself on the receiving end of such treatment from Virgin Money. And not just because pressuring your customers into buying anything is obviously bad practice. Because, as my fellow Fool Cliff D'Arcy has been saying for years, PPI is a complete rip-off.

Here's why you should never allow yourself to be pressurised into buying it.

What is PPI?

PPI can, theoretically, be a valuable back-up if you end up in financial trouble. It's designed to provide cover if you can't make loan, credit card or mortgage repayments because of an accident, sickness or unemployment.

What's wrong with it?

Greed: The PPI you're sold with loans or credit cards is usually astoundingly bad value.

Because the lender is in pole position to offer you this cover, there's little incentive for them to price it competitively. As a result, you'll usually be charged way over the odds while they pocket an enormous profit.

Cliff D'Arcy used to work in the PPI market before he turned from `the dark side' and waged war on it. According to him, loan PPI can be sold profitably and add less than 4%to your monthly repayments.

In practice, these policies cost around three to five times more than this!

Loopholes: The second main problem is the number of get-out clauses and loopholes that usually exist in the PPI sold with consumer credit products.

This means that a large percentage of claims are rejected, on top of the fact that customers have been paying far more than they need for this cover in the first place.

Mis-sold: Finally, PPI with products is frequently mis-sold. Big financial incentives are offered to staff selling PPI to customers, so it's not surprising that the product is often not described in an objective and sober fashion.

For example, many self-employed borrowers have been sold PPI, despite the fact that they cannot claim on the unemployment cover.

And when I took out a personal loan a few years ago, I had to question the staff member for several minutes before I dragged out of her the fact that PPI was not, in fact, a compulsory purchase!

A light at the end of the tunnel?

There is hope on the horizon. Earlier this year, the Competition Commission concluded that - surprise surprise - the UK PPI market was anti-competitive.

In The Death Of Rip-Off Insurance?, Cliff D'Arcy explains what action may soon be taken to address the problem.

Still want it?

Hopefully now, if you are ever asked to `explain your reasoning' by a PPI salesperson, you can give it to them with both barrels!

But if you haven't been put off and have, in fact, decided you need PPI, you could still save a packet by choosing a stand-alone provider rather than the company dealing with your loan or credit card.

Fool partner British Insurance is one provider that should offer some good value options.

A final warning

If you're applying for a credit card, watch out for one last hard-sell you're liable to have to fend off.

Just after they try and sell you PPI, your provider will probably encourage you to buy identity fraud protection, to protect you in the event of your card being lost, or fraud being committed on it.

According to Which?, banks and credit card companies are playing on people's fears about ID fraud to sell them overpriced protection of this kind.

The consumer champion has awarded the product `Don't Buy' status - so think carefully before you part with your cash.

Thankfully, however, there are plenty of other steps you can take to protect your identity which don't cost a thing.

The first card Virgin sent to me was cancelled - by them - after it temporarily got lost in the `secure' mail system they use. The conversation that followed went something like this:

Me: `So the first card has now been cancelled?'

Staff member: `That's right. It's been lost on the way to you I'm afraid..Can I interest you in ID protection for your card? It'll provide cover in the event that the card is lost.'

Me: `But. but. you lost the card!'

I think that really says it all.

More: The Five Worst Credit Rip-Offs. Ever!