Payment Protection Insurance – the Competition Commission’s latest proposals

On 13 November 2008, the Competition Commission (CC) published for consultation its provisional decision on the sale of payment protection insurance (PPI).

Subsequently, on 21 November 2008, the CC also published its provisional decision on what the CC refers to as credit account retail finance or “retail PPI”, which it is considering as a separate issue. The CC found that retail PPI is only used in connection with home-shopping and store cards. As store cards are outside the scope of the CC investigation, the measures announced will only apply to home-shopping finance.

Please click here for the full proposals.

The two-year CC market investigation is now drawing to a close and following various rounds of consultation this latest version of the CC’s proposed package represents the CC’s final view of the regulation it expects to impose on the sale of PPI.

The CC has chosen to implement only some of the measures it originally consulted on. However, the measures that remain will have a profound effect on the industry. There are five measures proposed under the general PPI investigation and there is a further proposal that relates specifically to the retail PPI investigation. They are as follows:

• Prohibition on the sale of PPI at the time at which the underlying credit is sold (the point-of-sale ban)
• Prohibition on single-premium policies (this does not apply to retail PPI)
• Disclosure of the cost of the PPI in a standard form
• Obligation to provide the customer with an annual statement of the cost of the PPI
• Obligation to provide details of the price of PPI to third parties who produce comparison tables.
• In relation to retail PPI only, there is also an obligation to provide the cost of a stand-alone PPI policy where the PPI would otherwise only be sold as part of a package.

The most significant and most controversial proposal is the point of sale ban, which prevents the sale of PPI to customers within two weeks of arranging a loan or a mortgage.

Firms will also be required to provide a personal PPI quote to consumers, clearly stating the cost of the PPI individually and when added to the credit product. If this is not given at the point of sale, the firm must do so if they subsequently contact the customer to offer PPI and the two-week prohibition period starts from the date the PPI quote is provided to the customer.

Firms will also be banned from selling ‘single-premium policies’, which make it difficult for customers to switch to other PPI providers.

The following measures have been ruled out by the CC since it published its provisional findings:

• Further standardisation of PPI information given to the customer at the point of sale.
• All policies to be renewed annually
• Requiring distributors of single-premium policies to offer a regular premium policy with an identical level of cover as the single-premium policy they offered
• Minimum standards for elements of PPI policies that act as a barrier to switching (initial exclusion periods and pre-existing conditions qualification periods)
• Obligation to share information about customer claims
• Obligation to share information about customers’ credit card balance with a nominated underwriter
• Price caps

The principal exclusion is the imposition of price caps for a limited period to enable prices to be brought closer to competitive levels.

Interested parties have an opportunity to comment on the proposed remedies and these should be submitted to the CC by 4 December 2008. The final report (currently planned for mid-January 2009) will set out the CC’s final decision on the measures to be introduced. This is the last chance to influence this inquiry, which will radically shake up the future of PPI.

We have prepared an analysis of the combined requirements of new regulatory regime for PPI sales taking account of the FSA’s new ICOBS rules, the Consumer Credit Act and the additional requirements now proposed by the CC. This is intended to help PPI insurers, credit providers and credit intermediaries to assess the impact of the regime on their business and the new opportunities for distribution of protection products. It also highlights issues that firms may want to raise with the CC before the end of the consultation period.

If you would like to discuss these issues or receive a copy of the analysis, please telephone or email one of the contacts below.