Barclays Plc, Lloyds Banking Group Plc and other U.K. lenders will be banned from selling most types of credit insurance at the same time they sell the underlying financial products, an antitrust regulator said.
The decision today comes a year after Barclays and Lloyds won an appeal blocking the first effort by Britain’s Competition Commission to change the sales process for payment-protection insurance, known as PPI, to ensure it isn’t pushed on consumers.
“This is a very intrusive remedy,” said Mark Friend, an antitrust lawyer at Allen & Overy LLP in London. “The concern for banks will be that it results in an overall reduction in demand for PPI, which arguably is in no-one’s interests.”
Britain’s financial regulator, the Financial Services Authority, is also moving ahead with plans to overhaul the country’s loan-insurance market. PPI, sold to cover payments on credit cards and mortgages in case of sickness or unemployment, generates as much as 5.5 billion pounds ($8.7 billion) of annual revenue for U.K. banks.
“We have come to a clear view that, overall, customers will benefit significantly from the market reforms we propose introducing for PPI products,” Competition Commission Deputy Chairman Peter Davis said in a statement today.
“There is a real danger that this will result in fewer people taking out PPI, leaving them with no protection if they lose their job,” Capon said today in a statement.
The BBA is also seeking a judicial review of the FSA’s plans to modify how complaints about the insurance products are handled.
The London-based Competition Commission also banned so- called single-premium PPI, where customers pay for insurance in a lump-sum that’s added to the total cost of the loan. The FSA last year also asked banks to stop selling single-premium PPI, saying customers weren’t getting a fair deal.
Customers who buy PPI usually aren’t aware that they can buy the insurance from other companies, and they rarely compare prices and contract terms, or switch providers, the Competition Commission said.
“In the absence of such competitive pressure, consumers are charged high prices,” the regulator said today.
The antitrust watchdog, which introduced today’s ban in a preliminary decision in May, must draw-up an order and set aside time for implementation by banks before the ban can be implemented. The banks could also appeal again.
In an early win for the banks, an appeals tribunal in October 2009 ruled that the regulator failed to fully consider the convenience to consumers who buy the insurance at the same time they purchase the loan it protects. The new study reviewed the issue and said banks were “overstating the loss of convenience” that would result from a ban.
Barclays spokesman Alan White and Lloyds spokeswoman Heather Scott didn’t immediately return calls seeking comment.
Banning point-of-sale PPI could ultimately reduce sales because customers who have more time to consider the product might decide they don’t need or want it, the Competition Commission said in the report.
Most of the U.K.’s 12 million PPI policies are sold when consumers take out a loan, credit card or other type of credit, the regulator said last year.
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