Companies selling loan repayment cover are to be investigated over concerns that consumers could be getting a raw deal.
The Office of Fair Trading (OFT) said it will launch the probe early next year after it identified several issues which suggested the sector is failing consumers.
Payment protection insurance (PPI) is widely sold by banks and credit card companies when people take out a new loan or card. It’s designed to cover your repayments if you become unable to work due to certain illnesses or injuries, or if you lose your job. Up to 7.5 million such policies are taken out each year.
The OFT believes that several factors, including the way PPI is sold, mean there’s a high risk that those buying it could get a raw deal.
John Fingleton, OFT Chief Executive, said: ‘PPI is a complex product, often bought almost as an afterthought. Borrowers may shop around for credit, but the complex nature of PPI and a lack of choice mean that they are less likely to shop around for PPI.
‘There is a high potential for consumer detriment – our study will look at whether consumers are getting a good deal or not.’
Which? finance expert Teresa Fritz said:’This is a welcome investigation. PPI is expensive and gives limited cover; for example, it may not be suitable for the self-employed or contract workers.
‘When we’ve tested companies selling PPI we’ve found that many don’t sell it properly and in most cases people would be better off with an income protection policy instead.’
The OFT announcement follows a ‘supercomplaint’ it received from Citizens Advice about the sector. Certain organisations can make supercomplaints to the OFT, and this status means the OFT must seriously consider the complaint.
Citizens Advice Director of Policy Teresa Perchard said: ‘This is a clear signal that the OFT believes there is a case to answer. It is very good news indeed, and it marks the first step to a better deal for UK consumers.
‘People buy payment protection insurance because they are looking for peace of mind. Given the scale of borrowing in the UK and the amount of money consumers spend on PPI, it is vitally important that they get a product that gives them this and meets their needs at a fair price.’