Payment protection insurance (PPI)

Last updated 19/05/2011: any recent updates in this colour.

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A guide to Payment Protection Insurance

In June 2007 the CML, together with the Association of British Insurers, British Bankers Association, Finance and Leasing Association and Association of Credit Insurers, published a leaflet entitled "A guide to Payment Protection Insurance". The leaflet was updated in February 2008 to reflect a change brought into effect by the Financial Services Authority's new ICOBs rules: under the heading "How can I cancel PPI?" the cooling-off period has been extended from 14 to 30 days. You can find a link to the February 2008 version of the leaflet at the bottom of this page.

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Competition Commission Investigation into PPI

Payment protection insurance (PPI) including mortgage payment protection insurance (MPPI) for mortgages has been the subject of detailed investigations by both the Office of Fair Trading (OFT) and the Financial Services Authority (FSA).

The OFT announced on 7 February 2007 that it intended to refer the entire PPI market, including MPPI (but excluding insurance sold with store cards), to the Competition Commission (CC) for inquiry. The CML had argued that the OFT should defer a referral for MPPI to allow market solutions to take hold. Despite the responses from the CML and other trade associations, the OFT determined that the MPPI market was not sufficiently different to warrant a exclusion from the scope of the referral. We issued a press release outlining our disappointment with this decision.

The CML responded to the CC's issues statement on 11 May 2007. In it we emphasised the aspects of MPPI which differentiate it from the wider PPI market.

Following a lengthy inquiry, the Competition Commission published its final report on 29 January 2009, which outlined the following remedies for implementation in 2010:

A prohibition on the sale of PPI by a distributor or intermediary to a customer within seven days of selling credit to that customer.
A requirement on distributors and intermediaries to provide a ‘personal PPI quote’, clearly stating the cost of the PPI policy.
A prohibition on the selling of single-premium PPI policies, which act as a barrier to consumers switching and make it difficult to compare price with other PPI policies.
A requirement on all PPI providers to provide certain common information and messages in PPI marketing material.
A requirement on all PPI providers to provide certain information on PPI policies to the FSA for use in PPI price comparison tables.
A requirement on all PPI providers to provide an annual statement for PPI customers.

UPDATE - May 2010: Following an appeal by Barclays, the Competition Appeal Tribunal asked the CC to reconsider its point-of-sale prohibition (POSP) proposed in the remedy package. On 14 May 2010, the Competition Commission published a 'provisional decision' announcing that, following consideration of the issue, it intends to impose a POSP on all forms of PPI save for retail PPI. The CC will make its final decision in July 2010. If upheld, the CC will look to introduce its remedy package as swiftly as possible.

More information on the inquiry is available on the CC's PPI market inquiry page.

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FSA thematic reviews

The FSA published its report on the second stage of its thematic review into PPI in October 2006. In the first phase of its review, the FSA concluded that regular premium MPPI sold with prime mortgages did not pose a risk to FSA objectives, and it was therefore excluded from the scope of the second phase. MPPI sold with sub-prime mortgages was, however, included. The report on the second phase identified continuing problems with some aspects of the PPI market. However, the FSA acknowledged efforts by trade associations including the CML to achieve improvements. These efforts included the provision of guidance on improved sales procedures, training, and work with the Association of British Insurers to provide a consumer leaflet.

The FSA announced the results of phase 3 of the review on 26 September 2007. This confirmed the FSA's previous findings that sales of regular premium prime mortgage PPI, on an advised basis, were most likely to meet the FSA's requirements. We issued a press release in response.

In the wider PPI market, the FSA's report showed improvements in making it clear to customers that PPI was optional and offering cancellation refunds on virtually all single premium PPI policies. However, little or no progress had been made in other areas including giving customers clear information about the product and what it would cost. Full details can be found in the FSA's report.

A further press release and update were published on 30 September 2008 (more details available in the member-only part of this page).

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FSA/industry agreement of refunds of single premiums

On 28 March 2007 the FSA published a press release drawing attention to an agreement reached with PPI providers whose products are bought with a single premium. The FSA had been concerned that some of these products had "nil refund" terms which prevented consumers from receiving a partial refund if they cancelled the policy for any reason.

Under the terms of the agreement, firms should:

not include nil refund terms in contracts with new customers;
not apply nil refund terms in contracts with existing customers;
contact existing customers if their contracts contain nil refund terms to inform them how refunds will be dealt with in practice; and
include in new policies examples or a table to illustrate how refunds will be calculated to improve transparency.