The Competition Commission is expected to issue a damning rebuke next month to the UK’s largest banks over their sales of payment protection insurance (PPI).
The Commission, which is due to publish its report in early June, is expected to accuse the banks of making excessive profits from PPI sales and that they have used these to subsidise cheap personal loans.
PPI is insurance to help individuals pay off personal loans, credit cards and mortgages if they are unable to work due to sickness or unemployemnt.
But it is often mis-sold to people such as as the unemployed, self employed and casual workers who are not normally eligible to claim. The cover is also expensive and only lasts for 12-24 months. There have been complaints about PPI being automatically included in personal loan quotations, without customers’ permission.
The Competition Commission is expected to announce sanctions early next month against the banks for the £1.5bn of allegedly excess profits they have made from the sale of PPI.
It is also expected to say that the sale of PPI is uncompetitive because it is sold to a captive market whereby customers havelittle choice but to buy it from the bank offering them a loan.
If the banks are forced to sell PPI separately or banned from selling it altogether, they are expected to recoup the lost revenue elsewhere, including increasing the interest rates they charge on personal loans.
The market is worth £5.5bn a year and in a provisional announcement earlier this year, the Competition Commission accused the banks of making profits of £1.5bn in excess of a reasonable rate of return for selling this product.
The Financial Services Authority has already fined a number of companies for PPI mis-selling, including HFC bank, an HSBC subsidiary and Land of Leather.
The Competition could impose various sanctions on the banks next month, including setting a price cap, banning banks from selling PPI or introducing more transparent sales practices.
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