Page last updated at 15:51 GMT, Tuesday, 20 January 2009

Banks stop selling loan insurance

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Egg credit card was fined 721,000 for "serious failings" in sales of PPI

Five of the UK's largest banks have agreed to stop selling payment protection insurance (PPI) where customers buy it with a single payment.

The banks are the Alliance & Leicester, Barclays, the Co-Operative Bank, Lloyds Banking Group, and RBS Natwest.

The so-called "single premium" PPI has been singled out for criticism by regulators and consumer groups.

Both Which? and Citizens Advice welcomed the move, which applies to PPI sold with unsecured personal loans.

"These premiums are very expensive and can add substantially to the cost of a loan, often increasing people's debts instead of protecting them against hard times," said Citizens Advice.

Louise Hanson, head of campaigns at Which? said: "These firms have recognised that the party is over for single premium PPI and the rest should follow suit."

She added: "PPI has been widely mis-sold in the past so anyone with a personal loan should check if they have a single premium policy as they could claim their money back."

However the Finance and Leasing Association (FLA) defended the general principle of buying PPI, and said it would be wrong to ban it altogether.

"It is important that the Financial Services Authority (FSA) and Competition Commission recognise the need to maintain the provision of PPI, particularly when sold alongside credit offers," said the FLA's director general, Stephen Sklaroff.

Criticism

Payment Protection Insurance has been widely sold to people to ensure they can keep on paying loans such as mortgages, credit cards and personal loans if the customer loses their income because they fall ill, have an accident or become unemployed.

We... would expect other firms to notice these developments and review their own positionsquote here
FSA

Millions of policies are in force, and their sale has been highly profitable for High Street banks and other lenders.

However the past four years have seen the sale of these policies subject to continued criticism from consumer groups.

They have dubbed the sale of PPI a "protection racket" because the policies are expensive, and have often been mis-sold to people without proper explanation, sometimes to those who could never have made a valid claim in the first place.

Investigations by the Office of Fair Trading (OFT) and the Competition Commission have also criticised the sale of PPI, which is due to be severely curtailed following recent recommendations by the commission.

The FSA, which has levied numerous fines for mis-selling PPI in the past couple of years, welcomed the agreement by the big banks.

"We are pleased these firms have stopped selling single premium policies and would expect other firms to notice these developments and review their own positions," said Jon Pain, the FSA's managing director of retail markets.

"Customers being sold this type of product should be told how the product works, what it covers and how much it costs - especially as the cost of the PPI is added to the loan and interest charged on this amount," he added.

In December 2008, Egg credit card was fined 721,000 for "serious failings" in sales of PPI.



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