According to Which? many banks and lenders could be profiting in the millions by mis-selling costly Payment Protection Insurance (PPI) policies with their personal loans and credit cards. Which? believes that the Association of British Insurers (ABI) and General Insurance Standards Council (GISC) codes are being contravened. Companies are reluctant to divulge exactly how much profit is made from selling PPI but it has been estimated that annual figures could amount to as much as £5.5 billion.
Which? conducted a study where they posed as customers who contacted 20 different lenders to find quotes for a unsecured personal loan. In all they made a total of 100 calls. Which? was surprised by the findings of the investigation, which came under four main banners;
Automatically included, out of 58% of the calls made, lenders routinely incorporated PPI into the quotes without being requested to. One third of these callers were not informed that PPI had been added. This meant that it’s possible that customers are taking out this costly insurance without even realising it. Northern Rock automatically added PPI in four out of five calls and each time they failed to make this apparent. Intelligent Finance (IF) was the only company who did not try to automatically include PPI.
Explaining what is covered, in the calls where PPI was actually mentioned, only 29% of lenders included any description of what it covered. In every other call the customer had to ask for it to be explained to them. Abbey National, Barclays, Lombard Direct, Nationwide and the Royal Bank of Scotland presented no spontaneous information regarding what exactly the PPI entailed. More than two-thirds failed to mention what or if any exclusions applied, Halifax, Clydesdale, the Royal Bank of Scotland and Tesco offered no explanations without prompting, while HSBC gave some facts in all five of the calls made to them with Lombard Direct also giving some information in four out of five of the calls made.
Unbelievably none of the callers were asked about their medical history without prompting even though this is required by the codes of practice. This is exceptionally concerning as this is one of the main areas where PPI have been mis-sold; the policies are later discovered to be ineligible when customers have tried to make a claim. Only a third of callers were asked for any employment information even though many PPI policies do not cover part-time, contract or self-employed workers.
Providing policies, very few lenders were willing to send out a copy of the PPI policy documents when asked to. Unacceptably, some companies are relying on the customer’s right to cancel. Customers rely on the expertise of the lender to sell them a suitable insurance policy and to make sure that any important questions are asked before the point of sale. Markedly, Marks & Spencer did send out policy documents for four out of the five callers who asked for them.
The cost, Which? found a difference of £35 per month between the cheapest and most expensive PPI premiums on a £5,000 three year unsecured loan – this equals a total of £1260 for the insurance alone. Intelligent Finance was below the £23 national average at £11 but the Royal Bank of Scotland charged double the national average at £46 per month.
The GISC were interested in the findings produced by Which? and said that it considered breaches of their codes to be mis-selling. The code obliges companies to ensure the policies they sell are appropriate to the customer’s needs and that conditions for eligibility to make a claim are made clear.
The editor of Which? Helen Parker said, "Our investigation yielded shocking results. We have concluded that many banks may be mis-selling payment protection insurance with personal loans, to the tune of millions of pounds."