For years the banks and loan providers have raked in high profits by selling Payment Protection Insurance to clients whilst the clients were taking out loans. The problem has been that the insurance has not always been properly explained to the client so many have found that if they claim, there's some clause that rules their claim invalid. On other occasions, the bank has not made it clear that the insurance is optional or has not clearly spelt out the true cost of the insurance.



All this has got the Competition Commission and the Financial Services Authority very hot under the collar.

The Commission recently published its findings of its enquiry into the Payment Protection market, worth some £5.5 billion. Their report concludes that the market is uncompetitive because most buyers do not realise that they can get the same cover cheaper elsewhere and the selling tactics used by the lenders mitigate against the client shopping around. Furthermore, the Commission concluded that many of the policies offer very limited cover for illness or unemployment. (Indeed, in recent weeks some insurance companies have withdrawn from providing unemployment cover as they limit their exposure to the effects of the credit crunch.)

The Commission believe that lenders should not offer Payment Protection insurance whilst the loan is being arranged. They believe that clients should be given at least 14 days to shop around for the insurance before the lender attempts a sale. And they also want to ban the sale of single premium Payment Protection Insurance – that is where the total cost of the insurance over the policy's full term is added up and added on to the loan.

We very much support the Commission's finding but unsurprisingly the lenders are less impressed! They have been allowed to respond to the Commission and we understand, they have strongly opposed the findings.

We view the issue as should the lenders be allowed to power sell Payment Protection Insurance when the client would get a much better deal elsewhere? Let us be charitable and assume that the lenders will clean up their act and ensure that they properly check that the client would not be excluded from claiming, that they clearly explain that the insurance is optional and clearly explain the true cost of the insurance. (I think we are being fairly charitable here as past history and the Financial Services complaint files would suggest that it's a tall order!)

For the 14 day break to be really effective, the lenders should be required to tell their loan clients that it is very much in their interests to have Payment Protection insurance, which it is, and they should get some quotes before the lender comes back to the client with their quote on 14 days time. The lenders are sure to tell the client how important the insurance is but can you see lenders effectively suggesting that the client gets competitive quotes before they have time to present their own quote? No chance!

So, if at any time you need Payment Protection Insurance, please do not automatically accept the quote your lender provides. The fact that you are reading this article proves that you use the internet – so use the power of the internet yet again. Search for Payment Protection Insurance and I'll bet you the ham sandwich I'm eating, that you'll save at least 30% from the lenders “very competitive” quote.

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