Payment Protection Insurance - Barclays Challenge Government ruling
Barclays scupper plans for PPI reform
Plans to restrict the sale of payment protection insurance (PPI) at the point when loans or mortgage are granted have been set back following a successful appeal by Barclays bank.
The Competition Appeal Tribunal has now been forced to instruct the Competition Commission to back down from its plan to ban PPI sales such as
mortgage protection insurance, at this point of the transaction. The Commission released a statement commenting that it would study the judgement closely before deciding what course of action it would take next. In a carefully worded statement however it was made clear that it was only this one small part of their strategy, to make choices clearer for consumers, that was being affected.
A spokesman for the commission commented "The appeal was upheld on one ground which relates to our assessment of the remedy prohibiting the sale of PPI at the point of sale of credit,” before adding that it was because The Commission had been asked to “reconsider the loss of convenience for consumers of not being able to buy PPI at the same time as taking out credit."
Intended to allow consumers a cushion for repayment of their credit cards, loans or mortgages should they fall ill or lose their job, PPI has been a bone of contention between insurance companies and banks and finance companies for some considerable time. Early this year the Commission outlined a range of limitations on the sale of PPI with some commentators claiming the lack of competition in the field has led to “persistently high prices”. The Commission had stated that from October 2010, lenders would be unable to initiate a sale of a policy for up to 7 days after granting a loan to combat the “point of sale” advantage that the lenders had gained.
However after challenging the Commission’s plan on four separate grounds – three of which related directly to the point of sale restriction, Barclays have successfully convinced a tribunal that putting this plan into place could put customers who actually wanted to purchase cover at a disadvantage.
Referring to the plans laid out by the commission as a “remedy without consent” the Tribunal concluded that the Commission had failed to take into account the “loss of convenience which would flow from the imposition of the point of sale prohibition”. The Tribunal also added that it was this “constituted failure to take into account a relevant consideration” that meant that the Commission would need to revise its plans once more.
However the overhaul of how PPI sales are regulated is still continuing at a rapid pace as complaints from consumer organisations and those who believe they have been mis-sold PPI grow exponentially. This year alone we have already seen the FSA tell banks and other financial institutions to compensate those who may have been mis-sold policies, re-open the 185,000 old complaints that have been dismissed, and stop selling the much criticised single premium PPI, whilst companies offering help and advice to claim back fees spent on mis-sold PPI has practically become an industry in itself.
Referred to as a “protection racket” in some corners of the industry due to abnormally high cost policies being sold to people who can’t actually make a valid claim under the terms of their agreements PPI providers added excess profits of £1.4bn to their coffers in the heady days of 2006 when the Competition Commission first began making enquiries into the sector.
As Martin Lewis of financial advice website moneysaingexpert.com succinctly commented “Bank-based PPI is a near con - it's hideously over-expensive, billions of pounds of it have been mis-sold, and the sooner it's cleaned up and cleared out the better.”
At a time when public faith in the entire banking sector is at an all time low how the public will react to this further delay in cleaning up what is a tainted section of both the banking and insurance worlds’ remains to be seen. However, the general consensus amongst financial commentators is again echoed in Mr Lewis’ comments "It's a shame Barclays has succeeded in using its lawyers to delay the implementation of such an important ruling"
Whether they have stemmed the tide for good, or as Mr Lewis suggests have simply delayed the inevitable is uncertain, but for the time being the Bank’s are refusing to let this go without a fight.
Kris Oldland
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WARNING DO NOT BUY PPI FROM A BANK - EVER!
Insuranceblogger urges consumers to shop around and buy
mortgage protection insurance from independent suppliers after they have researched the market. The point of removing PPI sales from mortgage and loan sales was to stop the consumer from being pressurised into buying overpriced products to secure the loan.
Once again a bank, admittedly not one overly involved in the toxic debt fiasco , but one intricately involved in the collapse of the banking system by it's failure to step in and rescue Lehman Bros. (until they had collapsed and they cherry picked the best bits!), is allowed to dictate to Parliament and interfere with the due process of consumer law!
Insuranceblogger recommends checking out alternative protection products such as
Lifestyle Income Protection Insurance which has wider covers and is not tied to any particular lump sum debt.
Labels: Barclays, mortgage, mortgage insurance, mortgage protection, mortgage protection insurance, mppi, PPI, UK government
FSA orders GBP 60 Million Mortgage Protection Insurance Repayments
More than a million UK householders are to get refunds on their recent mortgage protection insurance monthly payments, after the City watchdog, the FSA, forced PPI providers including giant firms such as Aviva and Abbey; to pay back over GBP60 million in increased
Mortgage Protection Insurance premiums, which were slapped on already cash strapped mortgage borrowers earlier this year.
Over 2.1 million UK consumers have policies to repay mortgages and loans with accident, sickness and unemployment insurance attached.
The major UK money lenders have had over 10 years of collecting premiums on inflated house prices, with very few claims. But with claims now rising due to the recession, they've been recently hiking up the rates on many of these policies to maintain their profit levels.
The Financial Services Authority (FSA) and
Mortgage Payment Protection Insurance (MPPI) firms have agreed an industry-wide package of measures for consumers, including refunds of around £60 million.
The industry has acted in response to FSA concerns over recent increases in premiums and reductions in what customers are covered for under their policy. The FSA’s concerns centred on the terms permitting these changes, and how clearly they were disclosed. The FSA expects its concerns to be addressed by the agreement reached.
Following discussions initiated by the FSA with relevant trade bodies and some firms, the industry has responded positively by agreeing to:
• proactively refund increases in premiums, and reverse any reductions in cover, for customers who have experienced these changes to their policy in 2009;
• offer to reinstate policies where a customer had cancelled it within two months of an increase in premium or reduction in cover made during 2009;
• freeze premiums and cover for existing customers for at least the remainder of this year
• amend Mortgage Protection Insurance contracts to ensure that all customers are made aware of the circumstances in which firms have the right to vary premiums and cover.
New contracts will mean customers get a fairer deal with two months' notice of any changes to enable people to
compare mortgage protection insurance products and switch mortgage protection if necessary.
Jon Pain, managing director of supervision at the FSA, said:
"The FSA welcomes this positive move by Mortgage Protection Insurance firms to reverse recent changes in premiums or cover which will put affected customers back in the position they were in before the policy was changed. It will also give all MPPI customers clarity about when and why firms will be able to vary these in future.
"This clarity will provide the basis for MPPI to remain a valuable option for many mortgage customers who wish to take out protection, alongside the mortgage commitment they are taking on."
The affected companies will contact customers if their policy is affected, and will make all refunds by the end of June 2010.
The Consumer Panel has also welcomed the announcement today of FSA action and an industry-wide refund on Mortgage Protection Insurance.
Adam Phillips, Chairman of the Financial Services Consumer Panel, said:
“This is exactly what a financial regulator should be here for and we applaud the FSA’s action. It cannot be right that firms change the terms and conditions of an insurance policy just as times get hard and when people are more likely to try to claim on it.
We note that this agreement is to freeze premiums and cover for existing customers until at least January 2010. We will be watching to see how the FSA ensures
Mortgage Protection customers continue to get a fair deal beyond this date. Significant changes to cover go against the whole principle of why people pay for insurance and undermine consumers’ trust in the industry.”
Labels: fsa, FSCS, mortgage, mortgage insurance, mortgage payment protection, mortgage payment protection insurance, mortgage protection, mortgage protection insurance, mppi, UK government
Mortgage insurance – why be vulnerable?
Burgesses
Insurance News has published an interesting article today looking at the rationale behind the purchasing of insurance as a protection vehicle, and questions why the public are disinterested and can't be bothered when it comes to purchasing
Mortgage Protection for the largest investment of all - a house!...........
It it just that the public doesn't appreciate the risks? Until it is too late....
Mortgage insurance – why be vulnerable?First Published
Burgesses.com July 27th, 2009 in Mortgage Insurance |
Most people are thoroughly accustomed to one of the most basic principles of insurance – if something is valuable, it is probably worth insuring. Although the principle might be widely recognised in many other areas of domestic life, however, for some reason it does not seem to be so readily grasped when it comes to mortgage insurance.
Only an estimated 25% of the nation’s 11.7 million mortgage borrowers are believed to have arranged this potentially indispensable for of insurance. Given the sheer value of the mortgaged homes, not to mention the dire consequences of defaulting on the mortgage repayments, the statistic is surprising to say the least. Some three-quarters of borrowers seem to be leaving themselves vulnerable to the most common risks to their incomes – accidents, illnesses and unemployment – and with the loss of an income, the ability to continue their mortgage repayments.
The penalties for defaulting on the mortgage repayments, of course, can be serious indeed. In the worst cases, it can lead to repossession of the home itself by a mortgage lender determined to recover the outstanding debt. But even if some arrangement can be reached with the lender, the homeowner is still vulnerable. If mortgage repayments cannot be made, the home might have to be sold – even though the current state of the housing market might mean that such a sale realises less than the outstanding mortgage debt. At the very least, the late or non-payment of the mortgage instalments as they fall due will attract adverse credit reports on the borrower’s file. This will make borrowing – or any other form of credit – more expensive to arrange in the future, if the facility is extended to the individual at all.
This is a vulnerability that the homeowner can easily avoid with
mortgage insurance. The insurance can offer complete protection for the mortgage repayments in the event that the policy holder meets with an accident or suffers an illness that prevents normal earnings from work. The same protection is also extended if the policy holder loses his or her job through compulsory redundancy. In any of these events, such a policy will pay out an insured benefit from which the mortgage repayments can continue to be paid – in many instances, directly to the mortgage lender concerned, if needs be.
Once in payment, the
mortgage insurance monthly benefit payments ensure that the mortgage is repaid every month that the policy holder remains incapacitated for work, involuntarily unemployed, or for up to a typical maximum period of 12 months, whichever is the shorter time. Taking up the option offered by some policies, payouts can be made over an even longer period and extended for up to a maximum of 24 months, if an additional premium is paid.
Labels: mortgage, mortgage insurance, mortgage payment protection, mortgage payment protection insurance, mortgage protection, mortgage protection insurance, mppi
