The Office of Fair Trading has set its sights on the issue of payment protection insurance (PPI) mis-selling. According to John Fingletom, OFT Chief Executive, "'Following the work we have undertaken it is clear that many consumers are failed by PPI - insurance which gives them a poor deal and often less protection than they think. There is limited evidence the industry is taking steps to improve the situation, but we believe they will not make major improvements to competition in the market. Given our evidence and the scale of this market, our provisional view is that it would be appropriate for the Competition Commission to investigate further"

 

The OFT said the insurance, which promises "peace of mind" for borrowers by guaranteeing their debt repayments in the event of sickness, accidents or unemployment was "overly complex", provided "less protection than customers think" and was "poor value".

 

While not all payment protection insurance was sold inappropriately, it is estimated that half of policies were. And while some policies do provide a benefit to consumers by paying loan amounts due in case of sickness, injury or the loss of a job the concern of the OFT is that many policies are overly complex and fail to make meaningful payments. In 2005 only 11 per cent of policy premiums were paid out for PPI claims, as compared to 74 per cent in the auto insurance industry.

 

Of concern is the fact that PPI was and is typically sold at the along with the purchase of a new line of credit, a practice that hinders the consumers ability to shop for a better offer and minimises competition.