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Banning PPI sales at credit point of sale is good for consumers

Interesting news today from the Competition Commission re PPI sales. We used to sell this product but stopped for 2 reasons:

1) we hardly sold any, probably because we simply made it available, with no real sales effort. That’s not to say we didn’t describe it properly but we didn’t push it, or even worse leave the borrower with the impression it would mean they would be more likely to be granted a loan if they bought it. Sellers are really really not supposed to do this but I question how they get (or should I say used to get) such high conversion rates without doing so;

2) we discovered that the level of claims made by the borrowers under the policies we did sell was tiny, so we didn’t consider the policy offered value for money.

However I have been prompted to write by what I have read in the media today from the credit industry in defence of selling the product at point of sale:

1) the idea that the product is good for vulnerable customers, so depriving them of the opportunity to buy it is some kind of infringement of their civil rights. In reality consumers have plenty of opportunity to buy sensibly priced insurance policies to protect themselves against unforeseen problems, and if the industry doesn’t agree then it has plenty of opportunity to plug the gap – but without taking advantage of consumers’ susceptibility at the time of their taking a loan when they feel that buying the product being pushed so strongly will help them get a loan and when there is no competition between insurance product providers;

2) that the success rate of claims under these policies is high (I have heard 80%, and higher than under household insurance). This misses the point in my view as in our experience consumers just don’t claim under these policies. I don’t know whether this is because they don’t understand them or even worse don’t know they have them or because they study the policies before they make the claim and realise that they can’t claim but it is highly relevant to me nonetheless;

3) that the statistics presented by the Competition commission about the enormous profitability of the product are out of date and therefore by inference irrelevant. However no alternative statistics have been offered and I think the true level of profitability is strongly suggested by the size of the lobbying effort to retain it;

4) that the product has kept prices of credit low and availability high. This is a crazy statement, inconsistent with 3) above and plays straight into the hands of opponents. I think it is generally agreed that transparent markets work better then untransparent ones, and using PPI income to cross-subsidise loan rates is untransparent and quite rightly the Commission seems to think so too. Furthermore, cross subsidizing lending rates and making credit more available may even have contributed to the lending bonanza that most agree is a major cause of lending institutions’ current difficulties.

My underlying frustration is how foolish the defence makes the industry seem at a time when consumer trust is at an all time low. Talk about shooting yourself in the foot!