A ban on the sale of payment protection insurance (PPI) at the same time as credit cards, loans and mortgages will go ahead, the competition watchdog said today.
Providers will instead have to wait seven days before they can contact customers to sell them the insurance, the Competition Commission has confirmed (see the PPI Reclaiming guide).
The move, likely to come into effect in late 2011, upholds an earlier ruling it made on plans for a point-of-sale prohibition, which was subject to an appeal by Barclays.
Whether the ruling makes a difference is unclear because many banks have stopped selling PPI (see the Banks scrap PPI sales MSE News story).
The measures concerning the sale of cover are independent to the row over compensation for victims, with numerous banks putting claims on hold pending the result of a landmark legal case on the matter (see the Banks freeze claims MSE News story).
The Competition Commission is also introducing a package of measures to boost competition in the market, including personal PPI quotes for consumers, annual statements on the cover and better information to make it easier for people to shop around and switch provider.
It is also banning the sale of single premium PPI policies, in which the cost for the entire term of the policy is paid upfront and usually added to the debt being taken out. However, this is virtually extinct anyway.
PPI covers debt repayments if the holder is unable to work due to an accident or illness, or if they lose their job or die.
Barclays had argued the point-of-sale ban is not justified and the decision failed to consider the inconvenience that could arise for consumers.
But the commission says, having reviewed the evidence, customers would benefit "significantly" from the reforms it was proposing.
It says the changes would mean PPI providers would face real competition, where there is currently little, and as a result the cost of the cover would fall significantly.
It is sold to cover a variety of financial products, but more than 90% of PPI sold in the UK relates to unsecured personal loans, credit cards, mortgages or secured loans.
Inquiry chairman Peter Davis says: "The package of remedies – including the point-of-sale prohibition – will introduce competition which is likely to bring substantial benefits to customers in terms of lower prices, better products and more choice.
"While the evidence does suggest that there is a potential downside to the prohibition, that some consumers will indeed suffer an inconvenience from not being able to purchase PPI at the credit point of sale, we are unanimous in our view that overall, consumers will be better off."
However, the commission slightly altered its initial proposals, allowing people to contact their lender themselves to buy PPI the day after taking out credit, rather than making them wait for 24 hours.
Today's measures do not apply to PPI for goods bought through catalogues, as research suggested consumers buying this form of cover are unlikely to shop around due to the small sums involved.
Further reading/Key links
Ombudsman guide: Financial Fight Back
Reclaim mis-sold debt insurance: PPI Reclaiming
Other issue-specific reclaim guides: Bank Charges, Credit Card Charges, Direct Debits, Setting Off, Mortgage Arrears, Endowment Mis-selling