Beware those who sell Insurance with Loans

Following pressure from Citizens Advice Bureau, the BBC and others the FSA is investigating firms who missell Payment Protection Insurance. There are wide variations in cover sold and the prices charged.

The Financial Services Authority (FSA) has launched a crackdown on companies that sell Payment Protection Insurance (PPI) after it found evidence that policies are being mis-sold by sales staff who are incentivised to sell but are often incompetent and poorly supervised.The FSA is to investigate some companies and will launch a second round of reviews next year.

Another government watchdog, The Office of Fair Trading, after pressure from Citizens Advice, is also looking at PPI. Research by Citizens Advice suggests that borrowers are often persuaded to buy policies that they cannot afford and do not want or need.There are an estimated 20 million PPI policies in force worth in excess of £5 billion, Citizens Advice says.

This follows a BBC Real Story programme which showed lenders including PPI on credit agreements without asking borrowers, even though rules demand that they should be signed for separately. There was also evidence that lenders are making PPI a condition of securing credit, a claim backed up by trading standard officers who recently found that cover is still sold as an essential part of some personal loans.

Lenders also demand upfront payment of all PPI premiums. This means that customers must borrow more to pay the premiums, which will increase the lender?s profits. Citizens Advice says this can swell the amount owed by up to 25 per cent of the value of a loan.

Research by Moneyfacts, the financial information service, found that PPI for a loan of £5,000 over 36 months might cost £1,020 from HSBC, £928 from Natwest, £760 from LloydsTSB, and £496 with Northern Rock. The variance of over £500 means it pays to shop. Which Loan 4u never quote loan repayments with insurance because we believe that most people will be better off without it. The self-employed and those with medical conditions might be attracted by the peace of mind that PPI appears to provide. However, it is just these groups who are ineligible under the terms of most policies,which are designed to exclude the most common situations that lead to debt problems.

PPI should always be optional. The British Insurance Brokers? Association (Biba) recommends that consumers check whether PPI has been included before they sign any credit or car finance agreement.The FSA says that those who push PPI do not always check customers? eligibility. Many bank staff are given the chance to earn commission on PPI, which can lead to a hard-sell approach where the sale does not always reflect customers? needs, Moneyfacts says.