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Point of sale PPI may be banned, says Competition Commission

The Competition Commission is considering banning the sale of Payment Protection Insurance at the point of sale of a credit product in order to improve competition and lower prices.

Its report into the sale of PPI found that consumers are being overcharged more than £1.4bn a year.

The CC is also considering the introduction of a price cap as a temporary measure to reduce prices and has proposed a ban on single premium policies.

The provisional findings report found that the vast majority of the UK’s 14 million PPI policies are sold when a consumer takes out a loan or credit.

It says companies face little or no competition when selling the product to their credit customers and consumers rarely shop around for the best deal.

The CC says the absence of competitive pressure means the banks, mortgage providers and credit providers are able to charge higher prices.

Inquiry chairman and CC deputy chairman Peter Davis warns that there are serious problems with the PPI market.

He says: “The way PPI is sold as an ‘add-on’ to a loan or other credit product means distributors escape the pressure they should face from competing suppliers. Distributors don’t appear to compete much with each other on either price or quality of PPI. Neither do they appear to do much direct advertising of PPI to win customers from each other.

“We’re now consulting on a range of possible measures to ensure PPI customers get a better deal by emphasizing their right to choose, by improving their ability to compare prices and products and by making sure that they’re making a considered and informed decision when they take out the cover.”

Davis says there is evidence that some providers of personal loans are charging high prices for PPI to subsidise the interest rates being offered.

He says: “When considering what action to take, we’ll have to consider to what extent cross-subsidy is an important customer benefit and weigh that against the obvious disadvantages of high PPI prices and lack of choice that the evidence strongly suggests consumers are suffering from at the moment.”

The CC is inviting written feedback on the provisional findings report by 30 June 2008.

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