Banks braced for watchdog review into loan insurance sales

Britain’s banks are bracing themselves for the results of another damning watchdog probe into their practices, this time over the mis-selling and related failings of payment protection insurance (PPI).

The report, expected to be published by the Competition Commission early next month, follows the recent High Court ruling on overdraft charges by banks. The Office of Fair Trading was given legal jurisdiction to determine whether bank charges are unfair.

It was claimed last night that the Competition Commission report will look to impose sanctions against some of Britain’s biggest banks over as much as £1.5 billion of supposed excess profits made from the sale of PPI policies.

PPI is intended to cover borrowers’ monthly repayments on mortgages, store cards, credit cards, overdrafts and personal loans if they fall ill or are made redundant. However, many debt experts have branded it expensive and inflexible. Banks and retailers make £5.5 billion in premium income a year from these policies and the margins are large.

PPI does not usually cover those who are self-employed or have a preexisting medical condition. Yet many borrowers in this category are still sold the insurance. In other instances, borrowers are led to believe that their loan application will not be accepted if they do not sign up for PPI.

HSBC, GE Capital and Capital One are among the big names which have been fined already. This month, the FSA fined not just Land of Leather, but also Paul Briant, its chief executive at the time.

However, bankers have said that if restrictions are imposed by the Competition Commission to sell PPI, it would result in them attempting to recoup lost revenue by raising charges in other areas, and could involve them increasing interest rates on loans.

Potential restrictions are likely to include measures to improve transparency but could also involve a price cap and a ban on banks selling PPI to their loan customers.

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Banks braced for watchdog review into loan insurance sales