Loan Repayment - Watch Those Extras!
Monday, November 06, 2006
Following a complaint made by Citizens Advice in 2005, claiming
that aspects of the payment protection insurance (PPI) market
were severely harming the interests of consumers, a report has
been published by the Office of Fair Trading.
Payment protection insurance is designed to safeguard
borrowers' ability to keep up loan payments and in theory it
should make it easier to avoid getting into debt. If the
borrower suffers an illness, an accident or loses their job,
then PPI should step in and pay out for a specified period of
time. It appears that borrowers' are not being made aware of
exclusions which may mean that they can't make a claim.
In addition to these omissions, it appears that borrowers' have
no true idea of the real cost of cover and do not receive
suitable information on the product.
What is making matters worse is that providers are using an
assortment of very different terms for the same products.
Not all borrowers need the protection that these policies
offer. Prior to taking out the loan they would not have
considered the purchase of additional insurance and it is a
fact that almost 90% of unsecured loan providers automatically
calculate the cost of the PPI in the full figures for the loan.
If you apply for a personal loan you are likely to find an
amount for PPI added to the bottom of the calculations and may
even assume that this is a pre-requisite, which could be taken
as misleading.
The Office of Fair Trading revealed that the variance in the
prices were not relative to the cost. There were cases of
virtually identical policies costing from £16 to around £40.
Product providers seem to be doing very well out of selling the
cover, with the cost of claims showing as a very small
proportion of the annual income of £5 billion which they
receive from premiums.
In the PPI industry as a whole, the Office of Fair Trading was
not happy with regards the provision of clear information on
PPI prices, although this was not totally the case. It was
commonly found that marketing literature was on display without
any indication whatsoever of costs.
When taking out a loan, 25% of borrowers' had the mistaken
impression that by taking out a payment protection plan, their
application for credit would be viewed more favourably. Sales
agents earn a considerable income from the sale of the product
and commission of 60% of the product price is common.
An amazing 7.5 million PPI policies are sold every year,
despite the fact that they are unsuitable for a great many
borrowers' and many of them are incredibly expensive.
A feed-back session on the Office of Fair Trading report is
being held. Further action is then expected and this is very
likely to result in them offering encouragement to companies to
improve the product which they offer to their clients. Plans are
then likely to be put in place for a code of conduct. These
moves would be on a voluntary basis.
In the event of companies not complying with whatever moves are
proposed, it is possible that a full investigation and
recommendations could be handed to either the Financial
Services Authority or to the Competition Commission.
In the meantime, remember that this is a purely voluntary form
of insurance. Cover for accident, illness or loss of job can be
found in other forms. Indeed it is likely that many borrowers'
who have paid for this expensive cover are already amply
insured via other products.
Check the facts carefully. It's your money.
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posted by Dennis Cheesman @ 5:24 AM,
