Protection Cooling off
With changes to PPI and various forms of protection available, are consumers at risk of leaving themselves unprotected just when they need it the most?
Lloyds decided to exit the market A Lloyds spokeswoman said that
by Francis Higney, financial journalist, PR specialist
The saga surrounding the sale of payment protection insurance (PPI) seems unending. It’s no wonder that the Lloyds banking group decided in July to cut its losses and run. Further uncertainty was added to
the mix last month when the Financial Services Authority (FSA) came out with a new package of measures it insists must be implemented by this December. Once again consumer protection offers
the auspices for this latest raft of rules which will also include an obligation that where a lender has compensated a large number of mis-selling victims, it must also contact others sold in a similar fashion even if those borrowers have not made a complaint. It’s thought almost three million people could be entitled to compensation under this ruling. The new package of measures must be implemented by 1st December 2010. Since the FSA has taken over the
regulation of PPI it has carried out 24 investigations and three thematic reviews, issued warnings, halted the selling of single premium PPI with unsecured personal loans, visited over 200 firms, and handed out some very significant fines of approximately £13m. And that is without taking into
consideration investigations by the Office of Fair Trading and the Competition Commission who are expected to confirm a point of sale ban on PPI. It’s no wonder
“further changes in regulation will make it uneconomic to continue to offer these products in their current form”.
Cooling off The majority of this type of insurance is taken out at the same time that a loan or mortgage is agreed with the lender. However, insisting on a seven-day cooling off period will greatly reduce the chance of making a general insurance sale. Aviva, a major underwriter of PPI
insurance has carried out some research and discovered that 80% of customers who didn’t buy at the point of sale were unlikely to purchase the cover within the next 12 months. Tom Spink, director of creditor, Aviva
says: “We believe that by bringing in a point of sale ban significant numbers of people will be left without the protection of PPI.” The Association of British Insurers
declared itself “very disappointed” with the original CC decision. The Council of Mortgage Lenders is also concerned. “If, when future requirements for
selling MPPI are published, they are in line with the CC proposals it will become more complicated for lenders and intermediaries to sell. The possible unintended consequence of excessive regulation is that nobody will buy it,” said a CML spokeswoman. As well as the Lloyds group abandoning
this market, HSBC stopped selling PPI as a standalone product in 2007. Royal Bank of Scotland and NatWest only offer the cover with mortgages and loans of between £25,000 and £35,000, while
36 mortgage introduCer SEPTEMBER 2010
Nationwide only offers it with mortgages. Barclays is in the process of phasing out the sale of the cover.
Austerity And the irony is that the need for this kind of insurance has probably not been greater in the past 15 years or so as it is now. The austerity budget, the Autumn Spending Review which will highlight just where the axe will fall in the public sector coupled with the threat of a double dip recession and an increase in inflation creates a perfect storm that threatens the nation’s financial health. Recent research carried out by The
Times newspaper revealed that even a very small increase in mortgage rates “would deliver a significant hit to the finances of millions of homeowners’. A rise in mortgage rates to those seen as recently as 2008 would impose a near £1800-a-year squeeze on the household finances of ten million households, says PricewaterhouseCoopers. What’s more, lenders won’t be slow to
extract any extra cash from borrowers. Already emboldened by their success in ignoring government demands for them to lend to businesses and individuals, lenders are increasingly bullish about going after those borrowers that are in arrears. For the past two years lenders have
been urged to show ‘forbearance’ in respect to those that cannot afford mortgage repayments due to unemployment or sickness. Now they are changing their tune and saying that a policy of forbearance encourages overall debt to rise. So instead of doing all they can to keep customers in their homes,
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