Lloyds Banking Group has announced that it is to cease the sale of payment protection insurance (PPI) to new customers. This short-term form of financial protection had previously been sold alongside mortgages, credit cards and types of personal loans.
All of Lloyds businesses have stopped selling payment insurance as of the 23 July 2010. Existing Lloyds customers will not be affected by this change and their policies will still be honoured by the bank.
Lloyds’ Poor Client Service
Lloyds, which includes the familiar household names of Lloyds TSB, Halifax, Bank of Scotland, Cheltenham & Gloucester and Black Horse, had previously been accused of overcharging customers and failing to provide adequate advise at the point of sale, which goes against the FSA’s principle of ‘Treating Customers Fairly’.
PPI a Valuable Product
The banking group stated that they will offer borrowers a leaflet produced by the British Bankers’ Association setting out benefits of PPI and requirements for policy eligibility.
PPI is still an extremely valuable product when taken out by an eligible party and advised on correctly. Lloyds are handing out this leaflet because they still want their borrowers to take out this form of protection as it lowers the risk of default and provides a safety net for their lending activity.
This form of protection pays out a monthly benefit should the policyholder have to cease working due to accident, sickness or unemployment, therefore lowering the risk of credit default.
Much of the criticism of PPI had come from the fact that bank have been overcharging for this cover and failing to check whether clients are actually eligible to take out a policy.
Don’t Take Out PPI From Banks
Only this year there was a big investigation by the Competition Commission on the sale of payment protection plans alongside personal loans.
In their final report (please follow the link provided for further information) it was argued that the sale of PPI should be banned upon the issue of a loan due to banks ability to exploit a captive market. Much better deals are available by going to an independent insurance broker.