Payment protection insurance sale curbs approved

The restriction on PPI sales will probably take a year to come into effect

Banks will no longer be able to sell payment protection insurance policies when granting loans to customers, the Competition Commission has confirmed.

This "point of sale" ban was first proposed last year after a long investigation, but was held up by a challenge by Barclays bank.

PPI is supposed to cover borrowers' loan repayments if they fall ill, die, or lose their jobs.

Lenders will have to wait seven days before offering PPI to their customers.

The Competition Commission acknowledged that the sale restriction would inconvenience some customers who wanted the insurance.

But it argued that customers would be much better off overall.

"These reforms will mean that PPI providers will, in future, face real competition where there is currently little," said Peter Davis of the commission.

"And, in consequence, the prices consumers currently pay for PPI will fall significantly."

The restriction covers the sale of all forms of PPI - for instance alongside credit cards, mortgages and bank loans - but with the one exception of credit given to people who buy items through home catalogues.

The implementation date has yet to be decided and the change will probably take another year to come into effect, once the commission has made its formal order.

Enforcement action

PPI has become highly controversial after years of campaigning by consumer groups against the widespread mis-selling of the policies.

They accused banks and other lenders of foisting the insurance on millions of people, even if they could not make a claim under the terms of the policies, did not know what they were buying, or had been told improperly that buying the insurance was a requirement of being offered a loan in the first place.

The authorities, such as the Office of Fair Trading (OFT), Competition Commission and the Financial Services Authority (FSA), have been taking an increasingly critical view of PPI sales, which are now the biggest source of complaint to the Financial Ombudsman Service (FOS).

Last week, the UK's banks announced that they were taking legal action to thwart forthcoming FSA rules that would force them to re-open previously dismissed claims and pay compensation that might total as much as £2.7bn to 2.75 million people.

The FSA has so far taken action against 24 firms for mis-selling PPI and has already halted the sale of the policies alongside unsecured personal loans where a one-off upfront premium was involved.