Competition Commission calls for 14-day ban on sales.
The future of the lucrative payment protection insurance (PPI) market is in jeopardy following proposals from the Competition Commission to ban lenders from selling insurance for 14 days after a loan has been agreed.
The proposals, which are out for consultation until 4 December, follow a lengthy investigation and a series of hefty fines for lenders found guilty of pressuring consumers to buy unsuitable and expensive cover.
They are designed to encourage consumers to shop around and to end the perception that buying cover makes it more likely that a loan will be granted.
Lenders would not be able to contact borrowers about insurance for 14 days after the loan was made – although borrowers would be able to request an insurance policy from their lenders 24 hours after.
But the ABI has warned that the plans could kill the PPI market just when consumers most need protection.
Nick Starling, director of general insurance and health at the ABI, said: “This is devastating news for consumers. By effectively denying consumers PPI in the economic climate that they need it most, the commission has got this wrong.
“Unemployment claims on PPI policies have grown by 69% in the past 12 months, showing just how valuable this cover is proving to be.”
Consumer groups and independent PPI brokers welcomed the proposals, however. A spokesman for Paymentcare. co.uk said: “The major obstruction to consumers getting a fair deal on PPI has finally been blasted out of the way – a decision that should have been made long before now.
“Lenders’ ability to sell their own PPI at the same time as a loan has been one of the most unfair financial practices of recent years and has cost consumers billions of pounds.”
The proposals also include providing a clear quote to consumers and a ban on single-premium PPI deals, which make it more difficult to shop around.
The PPI investigation coincides with a crackdown by the FSA, which handed a record £7m fine to Alliance & Leicester for mis-selling in October.