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Eating humble ppi

Many mortgage advisers fear that sales practices for payment protection insurance will not improve until stricter regulation is forced on lenders. Some suggest that the big profits generated for lenders by PPI sales are standing in the way of reform.

Lifesearch head of pro- tection Kevin Carr says lenders are glossing over the product’s faults.

He believes that review- able terms and conditions, reviewable premiums, inferior definitions of inability to work and the fact that PPI can pay out for only 12 months are just some of the pitfalls which make it an inferior product.

Carr says: “By the time the seller has got through half of all the details the consumer really ought to know about PPI, they will have lost interest, which is why sellers so often skim over the flaws.”

Chase de Vere Mortgage Management director Nick Gardner says: “There are major shortcomings in policy delays before PPI pays out, if it does pay out, and most policies have onerous clauses which prevent the policy from working.”

Carr says few lenders are talking their clients through PPI alternatives, such as income protection. He adds that lenders are contradicting themselves by selling PPI without giving advice while claiming they are treating customers fairly.

Industry players have been pressing the Council of Mortgage Lenders to tighten the reins on PPI sales. Carr says a 2005 Morgan Stanley report found more than 17 per cent of high-street lenders’ total group profits came from PPI sales.

Carr says: “The sheer arrogance of the CML continues to defy belief. It has had years, if not decades, to raise standards in this market but has consistently ignored the thousands of calls for change and improvement because the market has been so profitable for its members.

“I have lost count of the amount of times I have spoken with mortgage advisers and even mortgage compliance managers who have no interest in the suitability of the insurance products sold, just the revenue stream created. Only regulatory intervention can improve this market and the CML knows it.”

Association of Mortgage Intermediaries director general Chris Cummings considers the banks should take most of the blame for PPI problems and the CML, as their representative, should do something about it.

The CML insists it has made it clear to lenders that they need to sell the product properly and it believes that PPI is an important safety net for borrowers.

Press officer Christopher Dean says the CML is working on baseline specifications to improve minimum cover and it might also address the selling process. but the report has no concrete publication date .

Others in the industry claim it is the responsibility of the FSA, not the CML, to ensure that lenders are treating customers fairly although many are concerned over whether the regulator will rise to the challenge.

Gardner says: “I do not necessarily think the Council of Mortgage Lenders is the body to do anything. This needs a more impartial organisation. If anyone is going to clamp down in this area, it is the FSA, but it has a patchy record. It might pay lip service and put out a standards report but what will that do? For people to change, the FSA needs to take action and I am sceptical that it will.”

Cummings suggests that rather than increase the amount of regulation, the FSA should enforce the rules already in place. He says: “The FSA put out a factsheet giving advice but what we have seen is that the banks have not responded. We do not suggest stricter regulation but we would simply suggest that the FSA enforces the rules it already has. The industry is wanting to raise standards.”

British Insurance Brokers’ Association chief executive Eric Galbraith believes that uncoupling PPI from the sale of mortgages and increased consumer education would help the situation.

He says: “PPI has traditionally been sold in conjunction with a loan or mortgage but the public is not informed. It needs more understanding so the consumer is aware that they can buy the product elsewhere.”

Cummings says: “People should never walk into a bank expecting to get advice. That is a problem the regulators have not picked up on. If you are go into a bank, you are going to get sold to.”

Galbraith says increased competition would reduce the price of PPI and improve consumer awareness. He says: “It is a question of further improvements in cover and cost. We need further competition to ensure consumers get better cover. The way lenders have been selling has improved but it should be much clearer for consumers.”

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