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OFT To Investigate PPI

As more and more of us turn to personal loans to fund anything from a new car to debt consolidation there will naturally be concern among consumers regarding how they would continue to make loan repayments if their circumstances changed unexpectedly.

This has led to a lucrative market for payment protection insurance, a product which has already been noted as, in some cases, being overpriced for the cover it provides and adding significantly to the cost of a loan. Well now a major consumer group, Citizens Advice, has officially complained to the Office of Fair Trading about many aspects of payment protection insurance claiming it is expensive and mis-sold, branding it a £5 billion protection racket.

Citizens Advice are among a number of consumer groups who are entitled to lodge a super complaint to the OFT that they investigate an issue they believe is unfair to consumers. The list of complaints over payment protection insurance include the overwhelming cost of some policies already documented, but also includes many other aspects of this cover they believe is unfair.

The fact that PPI often overcharges for the cover it provides has been documented, Citizens Advice cite one example when the value of a loan rose from £17,800 to £22,962 with the addition of PPI. Moneysupermarket has also pointed out the excessive cost, a low rate 5.7% personal loan could end up costing more than a loan at 6.7% with cheaper insurance costs.

It’s not just the cost of the cover that is being criticised though, its one thing paying excessively for cover, quite another if the cover is limited and unsuitable for your needs. Most PPI doesn’t pay out if you have to leave work for certain illnesses including bad backs and mental health problems.

Considering that back problems and stress are likely to be common factors in preventing consumers for working it seems PPI is failing in its intentions. Certainly from a consumers point of view. It has also been argued that PPI is useless for those who are self-employed and even that it has been targeted those who won’t be able to benefit from it, such as unemployed consumers. Citizens Advice states that 85% of their clients claiming had had their claims rejected, quite a different figure than the 15% that the industry states.

There have also been concerns that even when a policy will pay out, consumers are being left in the lurch and facing court action over non-payment of a loan while they wait for their claim to be dealt with. This is ridiculous when you consider this type of cover is meant to protect consumers from these problems and that consumer’s credit rating can ultimately suffer from these kinds of delays.

Once a super complaint has been made, the OFT are required to respond publicly within 90 days and that response could result in a government inquiry. Already the banks have seen their stocks lose value as a result of this complaint and its potential consequences. While it isn’t actually known how much banks make from PPI it has been estimated that Lloyds TSB makes 14% of its profits from PPI. Considering the range and breadth of products supplied by the banks a fringe product shouldn’t make up such a large portion of their profits.



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