PPI regulation could push up loan rates

Enforced regulation of the payment protection insurance market could adversely affect the secured and unsecured loans industry as lenders try to recoup the lost revenue involved, Uswitch.com warns.

The comparison website’s latest Personal Finance Industry Insight report claims that as a result of what it calls the Financial Services Authority’s ‘clampdown’ on PPI, the annual percentage rate of loans will rise as firms strive to fill the black hole left by up to £4.7bn in profits made from protection sales.

Nick White, head of personal finance at Uswitch.com, says: “The high pricing of PPI by banks is clearly subsidising the historically low loan rates on offer.

“A regulatory clampdown will signal the end of rock-bottom loan APRs.”

A spokesman for the FSA says: “‘Clampdown’ is not the right word – we are now the watchdog for PPI sales but that does not mean we ex-pect every firm to get PPI right.

“We monitor the market pretty closely and any firm that might be mis-selling the product will find us standing behind them.”

Matt Cottle, commercial director of Yes Loans, says: “PPI regulation is something that will affect the industry, there’s no doubt about that. We do not budget for PPI profits ourselves but I know of many firms that have relied on it in the past.”

Yes Loans was recently one of 10 firms chosen by the FSA at random for PPI checks.

Cottle adds: “The FSA deemed us to be operating fine but if anything the regulator’s interest only encouraged us to be even more compliant. The FSA is simply eliminating the possibility of lenders being kicked in the butt.”

Andy Moody, managing director of Loan Options, says: “It must not be forgotten that there is nothing wrong with PPI. The FSA itself accepts that at least 40% of customers require this type of cover.

“But it is true that some lenders earn a lot by linking their profits to protection and they will have to find ways to make profits in other areas. Rates may suffer because of this.”