A Victory In The War Against Rip-offs!
There's been a significant victory in our battle against financial swindles, which could make every future borrower of a loan better off.
Since joining Fool.co.uk, I've waged a six-year war against one of the UK's biggest financial rip-offs: payment protection insurance (PPI). At last I have some good news to report!
What is PPI?
Payment protection insurance is optional insurance cover sold alongside credit agreements, such as credit cards, personal loans and mortgages. It meets your monthly repayments if you are unable to work due to an accident, sickness or unemployment. Also, barring mortgage PPI, it pays off your entire debt if you die.
Although this cover sounds quite attractive, especially in a recession, it's actually a con. This is because almost all PPI is sold by lenders, because they have exclusive access to borrowers. Sadly, the lenders take advantage of this captive audience by charging sky-high premiums for PPI. I know, because I worked in the PPI industry for more than a decade. In my time, I saw profit margins exceeding 80% -- and even 90% -- of the premiums collected.
The end of rip-off loan PPI
The good news is that, following an inquiry by the Competition Commission, the PPI industry was exposed as both profiteering and anti-competitive. Furthermore, City regulator the Financial Services Authority (FSA) began to crack down on poor selling practices, leading to multi-million-pound fines for PPI providers. To date, twenty firms have been fined for mis-selling PPI, with the largest penalty being the £7 million levied on Alliance & Leicester in October 2008.
Yesterday, another blow was struck for consumers when five leading banks announced that, from the end of this month, they would cease selling single-premium PPI with personal loans. These five banks are:
- Alliance & Leicester
- Barclays
- Co-operative Bank
- Lloyds Banking Group (which includes Bank of Scotland, Halifax and Lloyds TSB)
- Royal Bank of Scotland/NatWest
With single-premium loan PPI, you pay one, massive, single premium at the start of the policy. It was one of my pet hates, because it was overpriced (adding 15% to 35% to monthly repayments), plus the premium was always added to the loan, so interest was charged on it.
Instead of selling single-premium PPI, these firms will offer monthly premium policies, which are more transparent and easier to cancel. Given that these five groups control the majority of the market for personal loans, this is a victory worth celebrating.
In addition, the FSA provided a veiled warning to other PPI sellers, by declaring: "The FSA expects other firms still selling single-premium PPI to take note of these developments" and "We are pleased these firms have stopped selling single-premium policies and would expect other firms to notice these developments and review their own positions." Clearly, the regulator is sounding the death knell for single-premium PPI, so it's good riddance to bad rubbish.
Buy PPI from an independent provider
I should point out that I'm not opposed to all payment protection insurance policies. In fact, at the right price, PPI can offer a valuable safety-net to people who are unable to work. As always, it pays to shop around, as the stand-alone PPI sold by independent providers comes at a fraction of the price. You can compare PPI policies at the FSA's own website, Moneymadeclear.
So that one victory in the war of rip-offs, but there are plenty more battles still to be won...
More: Get quality quotes for insurance | Ten Ways To Cut Car Insurance Costs | Five Fab Credit Cards To Use Abroad
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Comments
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Ability to pay being key to the amount of APR... that bit - m sitting thinking... the poorest people, with the most dreadful circumstances that (say) need money to bury their mother have to pay the most hideous terms on the planet. Its just wrong.
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I await the outcome of a case with the FSA against Egg. Apparently they'll get around to me in March but they advise I have a strong case. I was "temping" (first point) and second, I have a thyroid condition that never really is in the same league as a heart condition as it's not fatal. However it does affect every system of the body and could very easily be used as a get-out for an unscrupulous insurer. I was sold PPI as part of the package and at the time, like millions of other people, I absolutely believed that it was an essential part of the deal. Banks etc dont tell you its grossly over-priced and always was against the rules to make you think you HAD to take it on board. Now we realise (thank you Martin Lewis) - we've argued the point and we've won! Hoorah! I wonder - shouldnt all these insitutions have put some of those billions away for a rainy day instead of just spending the lot? How silly of them. Ah so many hard-hearted clever clogs pontificate here on stupid ordinary people who deserve all they get - stupid and/or just "cant be bothered". If I buy a cooker I expect it to work. If it doesnt, I can get my money back. If I got sick and didnt understand the legalese on a PPI contract enough to realise, too late, that SURPRISE the insurance won't pay out - disaster. On top of being sick, losing a job etc, I would have creditors baying for my blood when I though I was paying (through the nose) for some sort of security - silly me! Ordinary people come in all shapes and sizes - most dont have degrees in finance or banking (whatever). This is why the law must protect one from unscrupulous sharp practitioners. In the last 20 years anyway - the regulators have been far too busy partying to do their job. Toothless wonders that they are! Are we saying here that you have to have a college degree to qualify for any sort of financial product? Were we wrong to expect high street banks to deal with us fairly? I've no issue with folks making a profit - but a ridiulous one at the expense of a family's food on the table?
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Just got £1,728.48 back from AA Personal Finance (aka BoS) for a self employed client - in the small print it said his business would have to cease trading through inability to pay its debts before it would pay out - not much use if you are ill for 6 months !! Went all the way to the ombudsman who ordered a payout.
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17 February 2009