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Banks under fire after failure to defend PPI costs

‘Many bigger players seem to think they are beyond regulator’s reach’

The major high-street banks have come under fire after failing to defend the cost of payment protection insurance at an Office of Fair Trading meeting last week.

An OFT report earlier this month raised concerns over possible profiteering by slamming the cost of PPI and the sales practices used by banks.

Last week’s meeting, which included representatives from high-street banks, including HBOS, Abbey and Alliance & Leicester, along with the Association of British Insurers, provided an opportunity to respond to the report ahead of the next stage of the OFT’s investigation, details of which will be released later in the year.

However, the major high-street banks failed to defend their PPI sales practices, which include paying an average 60 per cent commission on PPI sales in 2005. The OFT found the median claims payout ratio is 17 per cent compared with 74 per cent on motor insurance and 55 per cent on household insurance.

British Insurance managing director Simon Burgess says: “It seems many of the players in this market realise their stance is indefensible and are waiting until they are forced to make changes rather than act voluntarily. I think they realise an overhaul of the market is just around the corner but are quite happy to continue making as much profit as they can until this happens. Many of the bigger players seem to think they are beyond the reach of the regulator.”

A&L says no providers were named in any of the OFT’s reports and the event was an information sharing forum, not a witch-hunt.

Spokesman Steve Gracey says: “No firms have ever been mentioned in the OFT reports. This was not an inquest but a new way of communicating their methodology to the industry.”

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