Debt insurance to be investigated

Payment protection insurance is available on credit cards and loans

The sale of payment protection insurance (PPI) for loans is to be investigated by the Office of Fair Trading (OFT).

The decision follows a so-called super complaint from Citizens Advice that PPI was too expensive and was often sold to people who did not need it.

PPI is designed to help people repay personal loans or credit card debt if they fall ill or lose their jobs.

The OFT will launch its investigation into the £5bn industry in the new year.

Under consumer law, the OFT is duty bound to investigate super complaints made by Citizens Advice, Which?, the National Consumer Council and Energywatch.

There is a high potential for consumer detriment - our study will look at whether consumers are getting a good deal or not John Fingleton, OFT chief executive

In September, while making its complaint, Citizens Advice outlined a number of problems with PPI, based in part on reports from people attending its Citizens Advice bureaux.

It said policies offered by mainstream lenders often excluded cover for common problems such as bad backs and mental illness.

Many policies also had arbitrary age limits or banned people who were self-employed or on fixed-term contracts from making a claim.

Complex

The OFT said it had already "identified a number of issues which point to the sector not working well for consumers".

In particular, the OFT said it had concerns over choice, transparency and the profit made by insurers through the sale of PPI.

"Borrowers may shop around for credit, but the complex nature of PPI and a lack of choice mean that they are less likely to shop around," said the OFT chief executive, John Fingleton.

"There is a high potential for consumer detriment - our study will look at whether consumers are getting a good deal or not."

Ultimately, the OFT can refer the insurance industry to the Competition Commission for enforcement action.