High-street lenders could see a big fall in payment protection insurance sales following the Office of Fair Trading’s decision to refer the market to the Competition Commission for further investigation.
Paymentcare.co.uk says the probe will act as a warning shot across the bows of “greedy high-street lenders” and result in fewer sales of the product.
Managing director Shane Craig says: “Banks and lenders have hijacked PPI as a cash cow to generate huge profits by charging consumers over-inflated premiums and it is inevitable that the reputation of the PPI market will be further tainted by the OFT announcement.
“The naming and shaming of high-street banks and lenders – which will be the likely result of this Competition Commission referral – is almost certain to trigger a deluge of claims for compensation from disgruntled consumers.”
The decision to refer PPI to the Competition Commission comes after a period of public consultation following the OFT’s earlier proposal to refer the PPI market to the commission in October 2006.
But the Council of Mortgage Lenders is disappointed by the OFT’s decision to include mortgage payment protection insurance in its referral.
Director general Michael Coogan says: “MPPI is a vital safety net for many households and this referral sends out entirely the wrong message to consumers. We will co-operate as fully as possible with the Competition Commission to examine the issues but we are extremely disappointed that the special and unique position of MPPI has been ignored by the OFT in reaching this counter-productive decision.”
During the consultation, the OFT received 20 responses from businesses, consumer organisations and trade associations. Having considered the views of respondents, the OFT says it believes the competition concerns it identified prior to the consultation exercise remain valid and a full investigation by the commission is now warranted.
The FSA took enforcement action against six providers for misselling PPI in 2006, with GE Capital Bank also being fined £610,000 last month. A further five firms are set to be disciplined in the coming months.
OFT chief executive John Fingleton says: “Despite some evidence of a degree of consumer satisfaction with aspects of the product, the evidence as a whole suggests consumers get a poor deal.”
Which? personal finance campaigner Paula Houghton says: “The Competition Commission needs to take strong action to transform this industry. Better practice needs to happen right across the board. We are concerned that just giving out more information to consumers will not be enough. The Competition Commission needs to stop companies selling inferior products to people who do not know what they are buying.”