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.”

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