Loan companies reform PPI practices

by Gill Montia

Story link: Loan companies reform PPI practices

The Financial Services Authority (FSA) has been successful in bringing an end to the practice of loan and credit card companies coercing borrowers into taking out expensive loan insurance by automatically adding the cover to online quotes.

The cover is intended to meet the cost repayments if borrowers become too ill to work or are made redundant.

Commonly, lenders’ websites have added the payment protection insurance (PPI) to the cost of the loan by using pre-ticked boxes that applicants have to un-tick if they do not want the insurance.

The FSA has long argued that this could result in some borrowers purchasing PPI without making an active decision to do so and that the practice is unacceptable.

In addition, PPI has frequently been criticised for being expensive and for not providing the cover customers believe they are buying.

This latest change follows an agreement earlier this year when lenders consented to give fair refunds to borrowers cancelling their PPI policies.

However, the need for FSA action in both areas indicates that some polices have been sold according to practices that have proved detrimental to consumers and it could be argued that, in such cases, compensation is due.