FSA Warns Lenders to Stop Selling PPI with Loans

Fri, 29 May 2009

The Financial Services Authority (FSA) has said that banks and other lenders should stop selling Payment Protection Insurance (PPI) alongside personal loans from today. The controversial form of loan insurance will be officially banned from October 2010, but with ‘ongoing concerns’ over sales, the FSA has called on all firms to halt the sale of the insurance now.

At present, there are more than 12 million PPI policies in the UK, most of which have been sold alongside loans, credit cards and mortgages . The premium for these policies is added to cost of the loan, thus upping the borrower’s interest rate . The insurance is designed to cover repayments in the case of borrowers losing their job or becoming unwell.

A spokesman for the FSA was confident that lenders would heed their advice and stop selling the insurance as of today. An FSA spokesman said, ‘No firms will be selling single premium PPI on unsecured personal loans from today following FSA intervention and action with the industry.

The furore regarding the insurance is unsurprising considering that there were over 31,000 complaints in 2008-09, with 89 per cent of cases resolved in favour of the customer.
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