subject: Cc's Ppi Decision 'could Cause Higher Loan Rates' [print this page] Consumers may suffer if the Competition Commission's recommendations on PPI are passed, an expert has warned.
A financial expert has warned that the Competition Commission's (CC) provisional decision to prohibit lenders from mis-selling payment protection insurance (PPI) could cause consumers to get "stung twice".
The CC hopes the measure of preventing banks and building societies using point-of-sale PPI on loans will lead to cheaper rates in a more competitive market.
Last week, the CC declared last week that the policy would stop the completion of sales of PPI during the sale of associated credit products, such as a personal loan, as part of its package to 'clean up' the PPI market.
PPI is currently used to cover repayments on financial products that the borrower cannot make themselves due to accident, sickness, unemployment or death. Despite the fact that it is sold to cover a variety of products, it is estimated that some 90 per cent of PPI sold in the UK is on loans, a credit card or mortgages.
There are over 12 million PPI policies active in Britain at the moment and the CC states that many of these are taken out by consumers without conducting the necessary market research in order to possibly get a better deal. This then leads to a situation whereby other PPI providers cannot reach credit providers' customers, therefore causing higher prices due to a lack of competitive pressure.
However, David Kuo, editor of the Motley Fool, believes that the CC's proposal may be to the detriment of the market as he expects banks to switch their revenue stream elsewhere by simply charging "higher loan rates for everyone".
"As far as consumers are concerned, they are going to be stung twice. First of all, many people will not be granted loans and those who are granted loans will have to pay a much higher rate of interest," he said.
