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Product category: Consumer issues
News Release from: Defaqto | Subject: Protection
Edited by the Insidemoneytalk Editorial Team on 20 February 2007

PPI mis-selling complaints 'could run
into tens of thousands'

Consumers could face rate rises and compulsory bank charges, Defaqto warns. Defaqto urges overhaul of PPI products to boost consumer confidence

Payment protection insurance mis-selling complaints are set to rival the endowment mis-selling issue with numbers of complaints running into the tens of thousands, leading financial research company Defaqto says But the regulatory clampdown on PPI could be bad news for consumers as banks and other lenders increase rates and charges on loans, credit cards and other products to compensate for the loss of income from PPI, Defaqto warns

Compulsory bank charges could even be imposed for some customers.

In its report on the PPI market published this week*, Defaqto reveals that too many customers are either unaware that they can shop around for PPI, or do not know where to go for alternative quotes.

It predicts it "is quite possible that the annual rate of complaints will run into the high thousands and possibly even tens of thousands" although the number of complaints is unlikely to top those about endowments.

But the consequence of complaints about PPI is that more consumers will face increased costs as income and profits to both lenders and insurers generated from PPI products declines significantly in the coming years.

It says that this will increase the price of unsecured loans, credit card rates and charges and could ultimately lead to the introduction of compulsory bank charges.

Defaqto is urging the PPI industry to act now to boost consumer confidence in PPI which can be a very important product for consumers when sold and designed properly and has outlined an action plan for providers.

This includes selling standalone PPI policies, making the sales process more customer-focussed and introducing a common set of terminology across the industry.

However consumer confidence in the PPI market is set to be tested throughout 2007, says Defaqto, with a forthcoming Competition Commission enquiry, FSA fines for rule breaches and an anticipated rapid rise in complaints as awareness of mis-selling grows.

Report author and Defaqto's Head of Insurance, Brian Brown said:"Consumers are becoming more aware of the all the problems starting to surface in the PPI market.

Forthcoming regulatory pressures from the likes of the Competition Commission and the FSA will bring PPI further into the limelight during this year.

We believe that there will be thousands more complaints about PPI over the next 12 months and if the PPI industry is to rebuild consumer confidence, it must act now.

"Too many customers do not realise that they have the right to shop around for payment protection insurance.

Therefore the industry must widen public understanding of PPI through greater transparency if the market is to be seen to be operating competitively and in the best interest of consumers.

One thing insurers and lenders should consider is opening up their PPI policies to the customers of rivals.

For instance, there's no reason why a customer buying a loan from one bank could not buy their associated PPI policy through a different bank.

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