New rules are being put place to for payment protection to be sold separately from loans, such as for mortgages and credit cards. Under the new guidance lenders must provide a seven day window before contacting clients for the sale of payment protection insurance (PPI).
What is payment protection?
Payment protection is a form of insurance that provides cover against the risk of missing loan repayments due to accident, sickness and unemployment. If you were to be off work for any of these reasons the policy could cover your monthly loan repayments for up to 24 months. Within this policy range, mortgage payment insurance and unemployment mortgage insurance are two of the most popular types of cover.
Reasons for the rule change
In a recent report the Competition Commission (CC) has decided to ban personal finance lenders from selling payment protection due to concerns over customer choice and competition at the point of sale. Under the new rules lenders would have to wait for 7 days before they can contact customers regarding this type of insurance.
In the past the lenders have been able of offer payment insurance to consumers in order to cover the repayment of their loans should they have to cease working due to accident, sickness and unemployment. The issue is that lenders only offer the products of one insure and therefore they have a captive market at the point of sale.
There has been a great deal of press comment on the overcharging by banks and other lenders for these policies, with some consumers paying over 50% more for cover as compared to if they went to an independent broker.
The right decision
The simple fact is that many consumers see the merit in protection products and simply take out cover from their lender without comparing what rates they could obtain in the market beforehand. In this respect the Competition Commission are right in their decision to impose a seven day waiting period on new sales for lenders.
Many of the clients we speak to regarding their mortgage insurance have been overpaying for their cover for some time and the vast majority took out that cover via their lender. Drewberry Mortgage Insurance welcomes the move from the Competition Commission as it is likely to result in far better customer satisfaction and competitive pricing.