Payment Protection Insurance under scrutiny
The Office of Fair Trading (OFT) has referred to the payment protection insurance industry to the Competition Commission after a months’-long inquiry into the industry, which stands accused of mis-selling the insurance, which is meant to help repay credit card debt, loans, and mortgages if the policyholder becomes ill or unemployed. In addition, the Financial Services Authority (FSA) has also criticized providers of payment protection policies. The payment protection industry is worth £5.5 billion per year.
While the OFT says that payment protection policies could help some consumers, policies are complex and difficult to understand, consumers often do not shop around for the best deal, and there have been cases where some consumers have been lead to believe that having such insurance would aid in applying for credit. The OFT has found that more competition in the sector could save £1 billion per year for consumers.
The investigation began after Citizens Advice filed a complain with the OFT, claiming that payment protection policies are often sold to consumers who do not need it and that it is too expensive. Citizens Advice has said it is glad the referral to the Competition Commission has been made, but that in their view the referral took too long to make. The OFT answered the length of time complaint by saying that it had to talk to all parties involved before making a referral.
The Competition Commission has the power to fine any firms found to be conducting business improperly and can make them change their business practices. Meanwhile, the FSA has said it is ready to fine 10 payment protection policy providers. The FSA has already fined GE Capital Bank over £600,000 over its sales of payment protection policies.