Timescale for new PPI regime is a cop-out

Last month saw the publication of the final report and recommendations of the Competition Commission\'s inquiry into the payment protection insurance market, and it proved to be a missed opportunity.

Don’t get me wrong, the question of PPI being sold alongside credit cards and loans was long overdue for scrutiny, but providers usually stubbornly maintain their selling practices until they are forced to change. Well, they have their wish. It is at least 18 months before the new rules have to be implemented and you can be sure that despite their public rhetoric, the banks and lenders guilty of selling these policies will continue to do so until they are forced to change. The new regime does not have to be implemented until October 2010, which is a cop-out.

Following lobbying by the industry the CC reduced the time delay between point-of-sale and customer contact from 14 days to seven. This is next to useless and effectively changes nothing.

The CC also chose to ignore industry concerns that mortgage payment protection insurance was being swept up into its general PPI proposals when it should have been kept separate.

For years the loan and credit card industry has sold PPI as part of the sale – almost as an integral and compulsory part of the loan.

Those who objected to the product were won over with the implicit positioning of it as a condition of loan acceptance, hence the incredibly high conversion rate on this most lucrative of add-ons, worth in many cases more than the loan itself.

Worse was the underwriting. With no excuse to get this aspect wrong – lenders had a detailed understanding of their customers’ circumstances, income and occupations – the product was underwritten at point of claim rather than point-of-sale, leaving many consumers ineligible to claim.

This despite the fact lenders knew at the time loans or credit cards were agreed that many customers would never be able to claim. It’s no wonder they were annoyed.

I have no doubt that many consumers have benefited from this cover but that has not stemmed the rising tide of criticism aimed at the product with its simplistic, inaccurate and flawed underwriting.

Some clients need protecting from themselves so selling them an integrated product is appropriate as long as they know what they are buying. But this doesn’t get around the problem of the one-size-fits-all underwriting approach.

Sold as an add-on to loans or credit cards, this product could have been effective if less profitable for lenders, but they chose to ignore this and continued with their blanket-bombing approach to selling.

Unfortunately, the damage done by this sector of the financial services industry has now affected other parts, in particular the mortgage market.

And then we come to single premiums. Not content with selling the cover as an add-on, someone decided that selling it as a single premium over a five, six or seven-year period was the way to go, paying little or no regard to either the impact on premiums or early cancellation issues.

So it’s not bad enough that the mortgage industry has seen a two-thirds drop in lending volumes in the past two years, it is now tarnished with the same brush as banks that sold PPI as an integral part of loans or credit cards.

It is unfortunate that the CC chose to ignore industry concerns about the inclusion of MPPI in its recommendations and ironic that at a time when more consumers need to protect their income the government has made this more difficult.

All forms of protection are attractive at point-of-sale but delay the decision making process by even a week and borrowers start to believe they are flameproof.

Our challenge is to restore confidence in the product at a time when borrowers need it most. It won’t be easy.

Brokers are stars on ice

The recent widely predicted icy blast once again brought the country to a grinding halt. Brits seem so overworked and stressed that they don’t need much of an excuse to stay at home, especially when the national media is predicting Armageddon.

So last Monday saw winter return with a vengeance. The capital was brought to a standstill and some minor roads were badly affected. But to the operators’ credit the vast majority of major transport routes were open and functioning well.

It is a sign of the technologically advanced era we live in that a large percentage of the working population could work from home. If ever there was an argument for moving your business online it was this spell of cold weather.

Of course, this is a challenge the majority of the mortgage broking community has long since taken up. There are enough problems facing our industry without taking on the added burden of battling through the snow.

It is good to see that the substantial investment in technology made by the mortgage industry in the run-up to Mortgage Day and the months after is paying off. Bad weather? Bring it on.