An urgent review into the sale of payment protection insurance has been called for by Liberal Democrat shadow chancellor Vince Cable.
It follows claims that industry regulator the General Insurance Standards Council is failing in its duty to protect policyholders by ignoring excessive commissions charged by brokers and other intermediaries selling these products.
Cable says: “There is clearly a serious consumer scam operating in the payments protection insurance market. The big banks and a small number of specialist brokers are taking advantage of weak rules, which do not require disclosure of commissions, to charge outrageous premiums.”
He has asked the Office of Fair Trading to investigate, calling the practice anti-competitive abuse. “The Office of Fair Trading should be addressing it. I have asked the OFT to investigate the matter.”
The most common form of PPI is designed to cover payments if mortgage borrowers lose their jobs through redundancy or illness. The costs of PPI on an average personal loan can easily double the total interest payable. Lenders are making a staggering £10m a day in premiums.
The GISC stands accused of ignoring overcharging by members firms and of even being complicit by omission to act, in the rip-off as it stands to gain through increased levies into its coffers from members selling this insurance. Latest Association of British Insurers figures show that premium income from sales of PPI products were in excess of £3.75bn in the year ending December 31 2003.
GISC members hand over 0.1% commission income to the organisation as an annual fee. That equates to a seven-figure sum for the GISC from PPI products.
Simon Burgess, managing director of PPI brokers, says: “You can see why GISC is more than happy to turn a blind eye to the rip-off charges sold by banks and building societies to unsuspecting customers.”
However, GISC says it has received few complaints about these products and that Burgesses' figures are inaccurate as there is a cap of £100,000 on income from member firms and that not all lenders are GISC members. The Royal Bank of Scotland is not a member, for example, although the other four high street banks are.
Rachel Maidment, spokeswoman for GISC, says: “Commission is higher where the intermediary is carrying out some of the work normally carried out by insurance companies.”
Burgess is unimpressed and says that any organisation that takes more than 50% of a PPI's client's premium is profiteering.