Competition Commission nears point-of-sale PPI ban

The Competition Commission (CC) has provisionally banned the selling of payment protection insurance (PPI) at the point-of-sale, following a legal challenge from Barclays.

A point-of-sale ban on PPI would stop it being bolted-on to the sale of an associated credit product such as a personal loan.

Following its investigation into PPI, the Commission found businesses which offer PPI alongside credit face little or no competition when selling the product to their credit customers.

Last year, Barclays legally challenged the CC's report into PPI and a proposed point-of-sale ban on the product at the Competition Appeal Tribunal (CAT), supported by Lloyds Banking Group and Shop Direct Group Financial Services Ltd.

CAT upheld the CC's findings on competition problems in this market, but ruled the Commission must consider further the role and importance of a potential drawback to a ban on customers.

In its provisional decision published today on its extended findings, the CC says the benefits of remedies including a ban will outweigh the disadvantages, in particular to some customers, by introducing greater competition and choice and lower prices to the market.

Inquiry chairman and CC deputy chairman Peter Davis: "Overall we concluded PPI providers are overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale.All customers of course will appreciate the lower prices for PPI and the greater choice we expect to result from more competitive PPI markets."

However on retail PPI, the CC has yet to decide whether the advantages of introducing a ban alongside other measures would outweigh the disadvantages.

It is inviting comments on whether alternative remedies would be more effective or less costly.

PPI covers repayments on credit products if the borrower is unable to make repayments due to accident, sickness, unemployment or (in many cases) death.

Over 90% of PPI sold in the UK is either unsecured personal loan PPI, credit card PPI, mortgage PPI or secured loan PPI.

In its 2009 report, the CC stated the vast majority of the UK's more than 12 million PPI policies are sold at the same time as a consumer takes out a loan, credit card or other type of credit, and many consumers are unaware they can buy PPI from other providers to compare prices and terms and conditions of PPI policies.

In the absence of competitive pressure, consumers are charged high prices due to the resulting ‘point-of-sale' advantage.

The CC will now invite comments on its provisional decision before publishing its final verdict in July.

If it upholds its provisional decision, it will move to introduce the full package of measures as swiftly as possible.