Banks cheat PPI customers with 80% commission

by Gill Montia

Story link: Banks cheat PPI customers with 80% commission

The controversy surrounding Payment Protection Insurance (PPI) continues with the Competition Commission asserting that banks and other financial institutions are taking up to 80% of the premiums charged.

The Commission is investigating sales of PPI, in a joint undertaking with the Office of Fair Trading and the Financial Services Authority.

In 2006, consumers paid £4.4 billion in PPI premiums, but according to the Competition Commission, the bulk of the money passed to banks, building societies and finance companies.

The Commission has already made it clear that it is dissatisfied with the length of time being taken by banks and building societies to reveal their level of profit from PPI sales.

It is now planning to use its legal powers to force the industry to open up its books.

PPI, which guarantees repayments in the case of sickness or unemployment, is commonly sold to those taking out loans or signing up to credit card agreements.

Consumers have reported being put under pressure to buy PPI to qualify for credit and the Commission has found evidence of “prices being higher than competitive levels when PPI is sold alongside a credit product”.

The cost of such policies sold by banks can be up to five times higher than similar cover that can be obtained from an insurance company or the Post Office.

The Commission has so far found “typical commission rates of 50% to 80% on personal loan PPI and credit card PPI, and around 40% to 65% on mortgage PPI”.

In addition, if claims on PPI policies are lower than expected, banks can take a profit.

Lloyds TSB sells more PPI policies than any other bank, followed by HBOS, Barclays and RBS-Natwest.