Barclays bank is investing in technology to increase sales of payment
protection insurance (PPI), despite damning reports on this type of loan
cover from the Financial Services Authority (FSA), the Office of Fair
Trading and a continuing investigation by the Competition Commission.
The high street bank has introduced a new IT system at its FirstPlus loans
division to make it easier to transfer customers from loan brokers to its
sales team. This will help to boost profits from single-premium PPI – a
product that consumer groups have branded as expensive and often worthless.
Single-premium loan insurance can become very expensive for borrowers because
the total cost of the cover is rolled up into the loan. Borrowers pay
interest on both the original loan and the insurance premium. If borrowers
pay off the loan early, they often receive no refund on the loan policy.
Experts are also concerned about “coupling”, where a lender sells its own PPI
alongside its loans, without offering consumers a choice of policy.
After a successful pilot with one broker, the FirstPlus sales team is trying
to put agreements in place with other brokers, promising some that it will
“double” PPI sales within a month, Times Money has
learnt.
The move by the lender, a division of Barclaycard, has angered consumer groups
which have been campaigning for the abolition of loans sold with
single-premium PPI. Teresa Fritz, principal researcher at Which? says that
it is time that the sale of this type of protection policy came to an end.
“We think that PPI should not be coupled to the loan,” she says. “We have the
strongest objection to people paying interest on an insurance premium. It is
outrageous.”
Ms Fritz adds that lenders using these practices to drive PPI sales will face
the wrath of Which?, saying: “We would condemn without reservation any
lender participating in strong-arm tactics of this nature. The current PPI
market is plagued with malpractice and needs radical overhaul if it is to
serve consumers well.”
Barclays insists that it is only trying to offer customers the chance to have
advised PPI sales. James Cooke, of Barclaycard, says: “FirstPlus is very
clear about the costs and the benefits of the insurance, which it discusses
with individual customers to understand their personal circumstances.
FirstPlus’s customers are not forced to purchase PPI.”
However, a recent report by the FSA into PPI sales found that most lenders are
still failing to explain the finer points of these policies. Clive Briault,
managing director of retail themes at the FSA, says that the regulator will
clamp down much harder if banks continue to ignore its guidance. He says:
“We are extremely disappointed that some companies have still made little
progress. Consumers are entitled to expect that they will be treated fairly.”
Last week Peter Davis, the deputy chairman of the Competition Commission, said
that the cost of single-premium PPI can be higher than the interest paid on
the loan itself.
In February the Office of Fair Trading asked the Competition Commission to
investigate the sale of PPI after the watchdog concluded that many policies
were “overly complex”, provided “less protection than customers think” and
were “poor value”. The watchdog’s damning conclusions came after a six-month
investigation into the £5.5 billion-a-year industry. The Office of Fair
Trading says that UK banks have sold about 20 million PPI policies in total,
yet the payout rate is only 20 per cent. This compares with 82 per cent for
car insurance and more than 50 per cent for home insurance.
However, it is not only consumer groups and regulators that are concerned.
Brokers who have previously sold loan-coupled PPI policies are now turning
their backs on the banks. One of the country’s best-known loan brokers,
Ocean Finance, wrote to lenders this year to advise them that it would no
longer sell coupled protection policies from next January. Instead, it will
offer its customers a choice of PPI policies.
In a letter to lenders, Paul Newey, the managing director of Ocean Finance,
said that the decision was taken because he did not feel that it was always
in the customer’s best interests to be sold a PPI policy coupled with a
loan.
Rising numbers of complaints about PPI to the Financial Ombudsman Service
(FOS) has added to the pressure. Between April 1 last year and March 31 the
ombudsman received 1,832 complaints relating to PPI. However, the FOS now
believes that figures for the 12 months to next March 31 are likely to be
double that.
Despite the obvious dissatisfaction from regulators, it is evident from the
latest Barclays project that UK banks and specialist lenders are still keen
to make money from the PPI market in its current format.
How to claim compensation
If you think that you were mis-sold payment protection insurance (PPI), you
may be entitled to compensation. Initially, you will need to contact the
organisation that sold you the policy, listing the reasons why you believe
that you were mis-sold.
If you are not satisfied with the company’s response and you are certain that
you were treated unfairly, write again and explain that you expect an offer
of compensation within 14 days. Should the company that sold you the policy
be reluctant to come to an arrangement, you can take your claim to the
Financial Ombudsman Service, the body that looks into customer complaints in
financial services.
At this point you will be expected to complete a complaint form, which can be
obtained at www.financial-ombudsman.org.uk/consumer/ complaints.htm.
If you need help with your complaint, you can also contact the Financial
Ombudsman’s consumer helpline on 0845 0801800.
CASE STUDY: Standalone policy was nearly seven times cheaper
One customer who narrowly escaped needlessly paying thousands for payment
protection insurance (PPI) was Lisa Green, a customer services manager from
Braintree, Essex.
Northern Rock tried to sell the 27-year-old PPI linked to her £10,000 loan.
The policy was priced at £53 a month, almost seven times what she is paying
now.
After doing some research on the internet, Ms Green found a standalone policy
from British Insurance costing less than £8 a month. She says: “They make
you feel that you have to buy cover from them. I was shocked that Northern
Rock charged so much – £53 is a lot of money to pay – but they are very good
at persuading. When you can get it so much cheaper, it is definitely worth
it for peace of mind.”
Ms Green says that she decided to shop around when reports of unscrupulous
practices by the banks started to surface. “From the beginning I knew that I
would not be taking the cover from them,” she says. “It is simple if you
look on the internet. It took me about 15 or 20 minutes to have a look at
some quotes. Then the application took about five or ten minutes.”
