Millions of borrowers who are being overcharged for payment protection insurance (PPI) have been urged to fight for refunds after the Competition Commission published its report on the market this week.

After an 18-month investigation the commission said that it had found “serious problems” in the sale of PPI, which is sold alongside loans and credit cards to protect borrowers if they are unable to meet repayments. It concluded that because lenders know that they have a monopoly in selling PPI at the time of a loan application, they charge high prices at the expense of the consumer.

Most policies cost about £17 per £100 of cover, but some charge as much as £24 per £100. The commission said that while general insurance policies pay out on 50 per cent of claims, on average, PPI policies sold alongside credit cards pay out in only 11 per cent of cases, rising to 15 per cent for personal loan PPI.

Martin Lewis, of the consumer website Moneysavingexpert.com, says: “It is great to see a big beast like the Competition Commission getting its teeth into PPI. When you take a loan, the lender is usually making more money from the insurance than the loan. But because it is hidden in the repayments, people do not realise that they are paying thousands of pounds over the life of the loan.”

The watchdog proposed some possible solutions, including prohibiting the sale of policies alongside loans and credit cards, a ban on the sale of single-premium policies, a temporary price cap and an annual limit on the duration of a policy to allow customers to shop around for cheaper cover. It is understood that the price cap will apply to existing and new policyholders. However, some experts insist that the proposals do not go far enough

to protect the millions of borrowers who are already overpaying.

Andrew Hagger, of moneynet.co.uk, the comparison website, says: “The investigation has been painfully slow and many customers continue to pay over the odds for inflexible and in some cases unsuitable cover.”

The final decision is not expected until December, but experts are urging borrowers to continue to reclaim the cost of PPI policies that they believe they were mis-sold. Pula Houghton, economic policy manager for Which?, the consumer group, says: “This should certainly spur on policyholders to consider whether or not they have a case for mis-selling.”

Downloadable template letters to send to lenders are available from sites such as MoneySavingExpert.com and which.co.uk. These also provide a mis-selling checklist to help to establish whether you have a case.

Vicky Taylor, personal finance campaign manager at Which?, advises those who think that they have a case to approach lenders directly, rather than use a third-party claims company, which would charge fees of about 25 per cent of the total refund. She says: “By doing it yourself you retain control and you get to keep all the money.”

Mr Lewis adds: “There is no need to specify the amount because the lender will do this for you. Simply explain that you think the insurance was mis-sold, that you are writing

to complain and you want your money back.”

Despite the Competition Commission's report, the Association of British Insurers (ABI) argues that PPI can be a useful product if you buy the right policy at the right price.

The ABI and the British Bankers' Association say that the commission's proposals risk destroying the PPI market, leaving consumers underinsured during an economic downturn. They claim that the industry has already made changes that help consumers to shop around and compare products.

Standalone PPI products typically offer more comprehensive cover with cheaper premiums. Moneynet.co.uk recommends Paymentcare, at www.paymentcare.co.uk, or British Insurance, at www.britishinsurance.co.uk.

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CASE STUDY

HOWARD WHALEY, of Newton Abbot, Devon, received a £1,250 refund from Alliance & Leicester (A&L) after the bank charged him £29.71 a month for three years for a PPI policy that he did not ask for and did not need.

The 50-year-old, who took out the £7,500 loan three years ago, says: “I downloaded some example letters from moneysavingexpert.com, which outlined the reasons for claiming and the correct wording to use.”

Mr Whaley told A&L that he had not asked for the policy and had other insurance to cover his repayments. A&L initially offered him £1,070, which he refused. “I calculated that I had paid £1,249.99 including interest,” he says. “It took about three months from start to finish. I have also stopped paying PPI on the rest of the loan repayments, which will finish in September.”