Page last updated at 23:02 GMT, Tuesday, 1 May 2007 00:02 UK

Warning over loan insurance costs

Credit card
Payment protection insurance is available on credit cards and loans

Consumers risk being "tricked" into buying payment protection insurance (PPI) when taking out a loan, according to consumer organisation Which?.

When Which? staff contacted 41 loan providers for quotes, 24 automatically included the cost of PPI insurance.

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

The Competition Commission is studying PPI after accusations that it is expensive and prone to mis-selling.

By adding PPI to loan quotes automatically, people could be tricked into buying it regardless of whether they need it or not
Martyn Hocking, Which?

The Competition Commission decision to investigate the 5bn industry followed a referral from the Office of Fair Trading (OFT).

During a year-long market study the OFT highlighted several market failings, including:

  • Consumers do not shop around for the best deal on PPI
  • The complex nature of PPI makes comparison between different policies difficult
  • Consumers in some cases assumed, were told or were given the impression that taking out PPI would help the application for credit.

However, the OFT acknowledged that PPI could provide "worthwhile cover" for some consumers.

PPI 'not always suitable'

Including the cost of PPI in a loan quote does not contravene any consumer law or banking industry protocol.

However, the Which? "mystery shopper" exercise highlights concerns that some loan customers could become confused when being quoted.

Which? spokesman Martyn Hocking said that people could see PPI as compulsory.

"PPI is not always suitable, yet our research shows that lenders are still extremely keen to sell it to us," Mr Hocking said.

"By adding PPI to loan quotes automatically, people could be tricked into buying it regardless of whether they need it or not."

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