PPI banned except in retail

The Competition Commission (CC) has said it wants to introduce a point-of-sale prohibition on all forms of payment protection insurance (PPI), with the exception of retail PPI to protect consumers.

“The point-of-sale prohibition would stop the completion of sales of PPI during the sale of the associated credit product such as a personal loan,” it said.

It was one of a package of measures the CC planned to introduce following its investigation into PPI, which concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers.

Legal challenge

The report and in particular the proposed point-of-sale prohibition were the subject of a legal challenge last year to the Competition Appeal Tribunal (CAT) by Barclays, supported by Lloyds Banking Group and Shop Direct.

The CC says this forced it to consider that a ban might inconvenience customers.

It claims its has carried out a detailed analysis of the likely effects a ban, including undertaking customer surveys, and an assessment of parties' internal documents and of various experiments looking at the possible impact of splitting the sales processes of credit and PPI.

The CC has concluded that the benefits of a package of remedies including the ban, by introducing greater competition and choice and lower prices to the market, will outweigh the disadvantages, in particular the potential inconvenience to some customers.

Retail exception

The exception is retail PPI, where it is not clear to the CC, from the evidence presented so far and from a new survey of retail PPI customers, whether the advantages of introducing the prohibition alongside other measures would outweigh the disadvantages.

It is inviting comments on whether alternative remedies would be more effective or would deliver equivalent benefits at less cost.

“Despite the effects of the economic climate and regulatory action, the underlying problems identified remain firmly in place,” the CC said.

Extra work done

Peter Davis, inquiry chairman and CC deputy chairman, said: “Following the legal challenge at the CAT, we've done an enormous amount of additional work to examine in further detail whether the package of remedies we're proposing including the point-of-sale prohibition will provide an effective and proportionate way of tackling the serious problems that still exist with PPI.

“We found that many customers would place very significant value on being given the time and space to choose the right PPI product-or indeed to decide that PPI is not right for them.

“We also found that a significant number of customers appreciate the convenience of buying PPI instantly at the point of sale of credit.

Overstated loss of convenience

“Overall we concluded that 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.

“Obviously the financial services sector has experienced some significant changes since our initial report. We looked at the effect of the relevant aspects of those changes on the PPI market and came to the view that, whilst the financial crisis and recession have certainly had an effect on providers' sales, they haven't altered fundamental competition problems.

Little choice

“PPI customers currently have little choice and prices are high because competition is very limited. It is notable that even in the depths of the recession following the financial crisis we found that the economic profits of PPI distributors remained significant.

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.