Buying from a broker can PPI save thousands as lenders accused of mis-selling by VICTORIA THOMSON
CONSUMERS are being fleeced by high street lenders, paying nearly five times more for payment protection insurance (PPI) than they would via a broker. The cover - which has been branded a £5 billion protection racket, because it is often aggressively sold, expensive and virtually useless - is meant to covers debt repayments in the event of illness or job loss and it is often sold alongside loans.
But price comparison website uSwitch.com said banks were charging up to 467 percent more for the cover than brokers, as they attempted to claw back some of the money lost through offering low interest rates. It more than doubled the annual percentage rate (APR) consumers paid on loans, effectively increasing it from 7.4 per cent to 18.7 per cent and added up to £3,000 to borrowings, with monthly repayments increasing by as much as £50. The research disclosed that a £10,000 loan taken out over a five-year period with NatWest cost £11,934.60 in total, but, if PPI cover was added to the cost, this would increase to £14,998.20 - 25.67 per cent more. It claimed consumers could save more than £2,400 by buying their PPI cover from a broker, such as Paymentcare, which would insure the loan for just £656.40.
"The willingness of providers to promote PPI can lead to policies being mis-sold to consumers," said Nick White, head of personal finance at uSwitch.com. "Many are under the mistaken belief they are getting the best rate, or that by simply taking out this product they may be more likely to be approved for a loan. Alarmingly, there are some consumers who don't even realize they have been sold PPI. "Consumers who take out PPI with their loan need to be conscious that the APR increases once PPI is added to the loan amount. More worrying for consumers is that the cost is sometimes added to the total amount borrowed and then interest is charged on both."
The Treasury select committee this week urged the City watchdog, the Financial Services Authority (FSA), to name and shame firms who were overcharging customers for PPI or mis-selling the policies. Last week, the FSA said visits and a mystery shopping exercise had uncovered poor sales practices of the polices, adding that there was a risk that they could be mis-sold to people who would never be able to claim on them. It found around half of the firms surveyed failed to take reasonable steps to ensure customers did not buy policies on which they could not claim or which provided limited cover.
"We've consistently called for tighter controls of the selling of this cover on the high street," said Paymentcare managing director Shane Craig. Citizens Advice has lodged a super-complaint about the sale ofthe policies with the Office of Fair Trading following concerns that, in many cases, the product was simply adding to people's debts and would do little to help them if they fell on hard times.
There are around 20 million PPI policies in existence, with mortgage lenders, hire purchase firms, major high street banks and credit card companies raking in billions annually.