Consumers being ‘ripped off’ over car insurance ‘poverty premium’ charges – Which?

Many consumers that pay their motor insurance premiums in monthly instalments are being “ripped off” by unfairly high interest rates, according to consumer advocacy organisation Which?

The group said that the excessively high annual percentage rates (APRs) charged by some firms were tantamount to a “poverty premium”, with those that are unable to pay their yearly premiums in full often opting to split costs over interest-accruing instalments.

It also levelled criticism at the FCA, suggesting that despite the completion of a two-year study into the practice, the regulator’s action amounted to “little more than a slap on the wrists for some of the worst offenders”.

Which? said that while the regulator’s pressure had decreased the number of lenders charging above 35% APR, some – including Dial Direct, the Co-operative Insurance and Policy Expert – were still charging above 25% APR.

Such high figures, it added, contribute to a “poverty premium, whereby lower-income households, who are more likely to rely on monthly payment options because they cannot afford high upfront costs, end up paying substantially more”.

Green light

Rocio Concha, director of policy and advocacy at Which?, explained: “Millions of motorists rely on monthly payments to afford essential car insurance cover, yet many are still being charged interest rates comparable to an expensive credit card.

“While some of the worst offenders have reduced their rates following regulatory scrutiny, the FCA’s weak approach appears to have been taken as a green light by the industry to keep charging extortionate rates. This means those who can least afford it are still paying significantly more simply because they cannot pay upfront.

“The FCA must take further action to drive down rates across the market and ensure all consumers receive fair value.”