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Competition Commission exposes banks’ huge profits from PPI

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by Kay Mitchell
”Competition

Payment Protection Insurance (PPI) is an insurance product that will repay the outstanding debt on a mortgage if the borrower is unable to repay due to a number of specific problems such as sickness or unemployment.

However, the insurance has been shown to be very costly and limited in the cover it provides.

The Competition Commission has established that banks make between £2.2 billion and £2.6 billion a year from PPI. Consequently, the watchdog is investigating the market for PPI after the Office of Fair Trading decided there may be evidence of an uncompetitive market that disadvantages consumers.

The watchdog has disclosed that lenders selling PPI could expect a return on their costs of 982%.

The Commission is investigating the market for PPI after the Office of Fair Trading decided there may be evidence of an uncompetitive market that disadvantages consumers.

In a report published this week, the Commission said the costs of providing PPI were approximately less than 5% of the total amount taken in income. The huge profit margins on PPI mean banks and other lenders have come to rely on the insurance to enhance the income earned from loans.

The Commission said they would make no money from selling personal loans if they did not push customers into taking out PPI at the same time.

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News posted: January 30, 2008

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