Competition Commission
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PPI-provisional decision on remedies
The Competition Commission (CC) has today published for consultation its proposed remedies designed to increase competition in the Payment Protection Insurance (PPI) market.
In its provisional findings report published in June 2008, the CC concluded that distributors of PPI-such as banks, mortgage providers and credit card providers-face little or no competition when selling PPI to their credit customers.
The vast majority of the UK's more than 13 million PPI policies are sold at the same time as a consumer takes out a loan or other type of credit and the CC found that many consumers are unaware that they can buy PPI from other providers. Consumers rarely shop around to compare prices and terms and conditions of PPI policies and rarely switch PPI providers.
This 'point-of-sale' advantage makes it difficult for other PPI providers to reach credit providers' customers and in the absence of such competitive pressure, PPI distributors are able to charge high prices.
Along with its provisional findings report, the CC published a Notice which outlined a number of possible remedies designed to increase competition in the market. Since then the CC has been collecting evidence regarding those possible remedies from PPI providers, consumer groups, the Financial Services Authority (FSA), the Office of Fair Trading (OFT), and other interested parties. Following a series of hearings and a considerable amount of analysis, the CC is now proposing a package of measures which it considers will be practical and effective in increasing competition in the market to the benefit of customers. These are set out in full on the CC website at http://www.competition-commission.org.uk. The proposed package of remedies includes:
* A prohibition on the sale of PPI by a distributor to a customer
within 14 days of the distributor selling credit to that customer.
This will address the point-of-sale advantage, and give the
customer more opportunity to compare products and providers, in
turn encouraging greater competition between providers. Whilst the
distributor cannot re-contact the customer for 14 days, customers
will be able proactively to contact the distributor and purchase a
PPI policy 24 hours after the credit sale.
* Credit providers
will be required to provide a 'personal PPI quote',
which will clearly state the cost of the PPI policy individually
and when added to the credit product. If this is not given at the
point of sale, the credit provider must do so if they subsequently
contact the customer to offer PPI, and the prohibition period
starts from the date on which the personal PPI quote is provided
to the customer.
* A prohibition on the selling of
single-premium PPI policies, which act as a barrier to customers
switching and the costs of which are difficult to compare with
other PPI policies. The CC considered whether mandating pro-rata
rebates on single-premium policies would be a sufficient remedy,
but has concerns about such a remedy which led it provisionally to
conclude that it would not be sufficiently effective.
* A
requirement on all PPI providers to provide certain information
and messages in PPI advertisements (including the price of their
PPI, expressed in a common format of monthly cost per £100 of
monthly benefit, and that PPI is optional and available from other
providers).
* A requirement on distributors to advertise PLPPI
(personal loan) and SMPPI (second-charge mortgage) alongside their
respective credit advertisements.
* A requirement on all PPI
providers to provide certain information on PPI policies to the
FSA and a recommendation to the FSA that it uses this information
for its PPI price comparison tables.
* A requirement on all
PPI providers to provide an annual statement for PPI customers,
including information similar to that provided in the personal
quote, to encourage customers to review their policy annually and
make it easier for customers to decide whether to switch.
The proposed remedies have been published so that interested parties have a further opportunity to comment before the CC publishes its final report (currently planned for mid-January 2009). This report will include the decision on the remedy measures to be introduced.
The CC last month published its separate provisional findings on retail PPI, a small part of the overall PPI market relating to protection taken out on repayments for shopping through home catalogues. The report concludes that, as with other types of PPI policy, retail PPI is highly profitable for distributors and there is little competition between providers on price and other factors, limited ability for customers to search for alternatives or switch products and a considerable point-of-sale advantage for the providers. The CC continues to work on its provisional decision on remedies for retail PPI.
The CC continues to liaise closely with the industry regulator, the FSA, which takes the lead on regulating sales practices and tackling mis-selling, as well as the Financial Ombudsman Service (FOS), which deals with consumer disputes. The CC's focus has been on examining whether there is effective competition in the market as a whole. In provisionally deciding to take action to improve competition between companies selling PPI, the CC aims to enhance the incentives for distributors not only to compete on price but to compete on non-price factors such as quality and service.
The CC would like to hear from all interested parties about the document by 4 December 2008.
To submit evidence, please email: PPI@cc.gsi.gov.uk or write to:
The Inquiry Secretary
(PPI investigation)
Competition
Commission
Victoria House
Southampton
Row
LONDON
WC1B 4AD
Notes for editors
1. The CC is an independent public body,
which carries out investigations into mergers, markets and the
regulated industries.
2. PPI covers repayments on credit products if the borrower is unable to do so due to loss of earnings as a result of accident, sickness, unemployment or (in many cases) death. PPI is sold to cover a variety of financial products, but over 90 per cent of PPI sold in the UK in 2007 was either: PLPPI, credit card PPI, mortgage PPI or SMPPI.
3. Enquiries should be directed to Rory Taylor on 020 7271 0242 or rory.taylor@cc.gsi.gov.uk.
4. The members of the PPI inquiry group are Peter Davis (Group Chairman and CC Deputy Chairman), John Baillie, Christopher Bright, Professor John Cubbin and Richard Farrant.
5. The OFT referred the PPI market for investigation by the CC in February 2007, following its initial study into the sector in response to a 'super-complaint' from Citizens Advice. Under the Enterprise Act 2002, the OFT can make a market investigation reference to the CC if it has reasonable grounds for suspecting that competition is not working effectively in that market.
6. Following such a reference, the CC carries out a comprehensive investigation, so that it can ultimately come to a final decision about whether any features of the market prevent, restrict or distort competition and, if so, what action might be taken to remedy these.
7. Market investigation references are intended to focus upon the function of a market as a whole rather than the conduct of a single firm in a market. If the OFT has concerns about the conduct of a single firm or firms that have engaged in anti-competitive agreements, it will first consider whether those actions infringe the Competition Act 1998.
