OFT to probe PPI sector

The Office of Fair Trading is to launch a detailed market study into the payment protection insurance sector early next year.

The study comes in response to the super-complaint Citizens Advice submitted to the Office of Fair Trading on September 13, which alleged features of the PPI market are seriously harming the interests of consumers.

PPI is applied to a number of credit products including mortgages, and protects a borrower’s ability to pay the loan.

Between 6.5 million and 7.5 million policies are taken out each year and it was estimated in 2003 that 5.4bn in premiums were generated.

The OFT is concerned that the size of the sector, the complexity of the product coupled with limited consumer understanding and the way the product is sold as a secondary purchase to the credit product all point to a potentially high risk of consumer detriment.

PPI is regulated by the Financial Services Authority which reported in November 2005 that the complexity of products, the vulnerability of typical PPI customers and poor levels of compliance meant the sale of PPI poses a high risk to its consumer protection objective.

Although the precise timing and scope of the OFT’s study will not be decided until after the Competition Commission has reported on store cards and associated PPI, it will consider the scope for a more joined-up strategy for regulating PPI. It will also consider whether guidance could raise standards and, if so, where that guidance should be targeted.

Huntswood, a leading provider of professional services to the retail financial services industry last week urged financial services firms to take immediate action following the FSA’s recent mystery shopping exercise and supervision visits.

Eurfron Jones, head of consulting at Huntswood, says: “The questions around PPI selling practices and eligibility for consumers should not be seen as yet another regulatory pressure but rather as an opportunity for firms to improve their practices and treat their customers in a way that promotes long-term business and customer satisfaction.”