Fear factor should not stop PPI advice

One of the most important issues facing the market is payment protection insurance, with the Financial Services Authority and the Office of Fair Trading conducting wide-ranging reviews of the product.

The FSA is undergoing the third phase of its PPI work and by July hopes to have visited 200 firms to scrutinise their PPI work. It is also gauging the progress made in response to the previous two phases.

It wants to ensure consumers know that PPI is optional and that detailed advice is provided to them covering costs, eligibility, exclusions and refunds.

And after a period of consultation, the OFT decided to refer the PPI market, with the exception of store card PPI, to the Competition Commission under section 131 of the Enterprise Act 2002. The CC has now begun its own investigation into the market, which could last up to two years.

The industry’s long-held ambition that 50% of all mortgages be protected by PPI has never been achieved, and it seems that given the level of regulatory scrutiny and the fines dished out to firms that have got it wrong, a number of brokers have shied away from selling such products. Some have even suggested that brokers have been frightened off and there is evidence to corroborate this.

Of course, lack of demand may also be en-couraging brokers to eschew PPI. Consumers may have seen the negative headlines and decid- ed it is not for them.

And with borrowers stretching themselves to get on the property ladder, they may consider protection to be an optional extra, not a must have. But protection is vital and brokers have a duty to make borrowers aware of their financial position should they run into trouble. Brokers may not wish to consider PPI products because of the fear factor, but now’s the time to think about income protection and critical illness cover.

These alternatives would give clients some degree of protection should the worst happen. Advising on these products would also expand brokers’ business, perhaps providing an extra income stream.

It’s understandable why brokers are shying away from PPI but it’s a necessary product for many borrowers. And if brokers adhere to the regulations, they should have nothing to fear.