PPI is designed to cover monthly payments on Loans or Credit Cards if they cant make the payments due to ill health, accident or unemployment. This point of sale ban will stop lenders from selling PPI for a period of seven days the only exception to this rule is if the customer actually rings the lender up after 24 hours of the original sale and specifically asks for information about PPI. This ban is part of a bigger package of reforms that were first proposed back in Jan 2009, these reforms were designed to sort out the lack of competition in the PPI market.
These reforms were originally planned to be implemented in October 2010 but due to an appeal by Barclays and others to the Competition Appeal Tribunal on the basis that the reforms were disproportionate and would inconvenience customers. The Tribunal upheld the Commissions conclusions of lack of competition in the PPI market but remitted the reform package back to the Commissioner regarding the lack of convenience.
In its final report dated 14th October 2010 the Commission has confirmed its conclusions that the banks had overstated the loss of customer convenience, even before taking into account the improved competition in the PPI market. Therefore the Commission has pressed ahead with the new reforms, these include the ban of sale of Single Premium policies, individual quotations for customers tailored to their personal circumstances, an annual review and measures that allow customers to compare products and prices.
Peter Davis the Competition Deputy Chairman stated that the commission believes that the new reforms will benefit customers significantly.
"In particular, these reforms will mean that PPI providers will, in future, face real competition where there is currently little. And, in consequence, the prices consumers currently pay for PPI will fall significantly," he said.
"We know that the major providers have been planning for a time when the prohibition is in force," Davis added, "and in our judgment they will look to continue selling PPI in the future - but thanks to our measures it will generally be as providers of standalone products, rather than ones tacked on to the credit product, which will contribute to greater competition."
The Competition Commission believes that the entry of the main players into the standalone market will be a key development.
"For customers this would mean that suppliers which have been providing most PPI policies will now be making standalone offerings available, increasing choice and increasing the number of household names offering them standalone policies," the final report states.
"This gave us added confidence that, with the remedy package in place, there would be competition between PPI providers"
Excluded from the point of sale ban, however, will be retail PPI, which covers repayments on goods bought via catalogues.
Although the Commission found a lack of competition in the retail PPI market, it concluded that many retail PPI customers would be unlikely to shop around for cover, given the relatively small sums typically involved. Instead, it will introduce measures to ensure clearer information on the cost of cover and the "unbundling" of PPI from merchandise cover, so that PPI would have to be offered separately.
The Commission expects its remedy package will have "a substantial and immediate effect" on competition for new PPI sales as soon as all its elements are introduced, and a substantial effect on existing PPI within two or three years, although it may take longer for the market's reputation to recover.
