U.K. banks including Barclays Plc and Lloyds Banking Group Plc should be banned from selling most types of credit insurance at the same time they sell the underlying financial products, a regulator said.
The proposal today is the second attempt by Britain’s Competition Commission to ensure that sales of payment-protection insurance, or PPI, are fair to consumers. Barclays and Lloyds won an appeal in October, when the antitrust watchdog was ordered to review an earlier prohibition.
“Businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers,” the Competition Commission said in a statement today. “In the absence of such competitive pressure, consumers are charged high prices.”
PPI, which generates as much as 5.5 billion pounds ($8 billion) of annual revenue for U.K. banks, is sold to cover payments on credit cards and mortgages in case of sickness or unemployment. Such products have come under scrutiny from regulators including the Financial Services Authority, which decided to ban so-called single-premium PPI.
Barclays is “disappointed” with the regulator’s decision to again propose a ban on so-called point-of-sale PPI, spokesman Alan J. White said in an e-mailed statement.
“We still maintain that to prohibit PPI being sold at the point of credit sale and for a fixed period afterwards will limit rather than enhance customer options and will result in customers being exposed as unprotected,” White said.
The Competition Appeal Tribunal, which handles challenges to antitrust rulings, said in October that the regulator failed to consider the convenience to consumers of buying the insurance when they purchase the loan it protects.
Peter Vicary-Smith, the chief executive officer of U.K. consumer group Which? said PPI products have been “widely discredited” and may not be suitable for all customers.
“It’s important that PPI is sold separately from other financial products to help consumers make an informed choice and find the protection product that best suits their needs,” Vicary-Smith said in a statement.
The antitrust regulator said it conducted a new study of the manner in which PPI is sold and determined that U.K. banks were “overstating the loss of convenience” that would result from a ban.
12 Million Policies
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.
While some consumers “do prefer to buy PPI at the same time as credit, many of these do not attach significant weight to this preference, and many other consumers would prefer to buy PPI later,” the regulator said in its 119-page report today.
A ban on 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.
Brian Capon, a spokesman for the British Bankers’ Association, said PPI is an important “Plan B” for customers, especially during an economic downturn.
“Payment insurance provides protection and peace of mind to many customers and we will be making the point to the competition authorities as we continue to work with them to make improvements where necessary,” Capon sad in the statement.
The investigation started in February 2007 with a referral from the U.K. Office of Fair Trading.