The ailing motor retail trade has been dealt a further blow.
In its final report on remedies for the market in payment
protection insurance (PPI), the Competition Commission (CC) has
opted to ban sales of the cover at the point of sale (PoS), citing
a lack of information about alternatives.
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Furthermore, follow-up sales of PPI will be banned in the seven
days after a loan is taken out, while single-premium policies have
been banned.
The ban will radically change the PPI market, as the “vast
majority” of the 12m policies sold annually are taken out at the
same time as credit, the Commission said.
Inquiry chairman Peter Davis said: “The ‘point-of-sale’
advantage has meant that leading providers have faced little
competition for PPI and, as a result, have charged persistently
high prices.
“Consumers’ interests are not best served when the only choice
the vast majority have is whether or not to purchase their credit
provider’s PPI product. The resulting lack of competition means
that the only offer consumers get is simply worse value than they
are entitled to expect.”
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By GlobalDataMotor dealers, for whom sales of PPI have often offered a vital
extra profit line in the difficult times that the motor retail
industry is currently going through, will be hard-hit by the
ban.
Previous punitary actions by the Financial Services Authority
(FSA) against dealers which it judged to have mis-sold the cover
have been well-publicised, with widespread anecdotal evidence of
dealers having ceased sales of PPI in fear of falling foul of the
FSA’s investigators as a result.
Director-general of the Finance & Leasing Association,
Stephen Sklaroff deplored the decision, which he claimed would
leave consumers without a financial “safety net” – just when they
will need it most, as unemployment spirals and consumers face a
tougher economic outlook.
“It is important for people to have access to have information
about protecting their payments, but by banning the sale of
insurance at the same time as taking out a loan, the Commission has
failed to understand consumer buying behaviour.
“By preventing customers from protecting their repayments at the
time they take out a loan, the Commission has made it much less
likely that they will do so at all,” he stated.
However, one F&I expert said that in his view the ban could
be good news for motor dealers – although not in the short
term.
“Customers have been turning away from PoS finance in droves in
recent years, with dealers unable to compete with the low rates
offered by banks on personal loans,” he said. “However, these rates
were cross-subsidised by sales of PPI, with its high margins.
“As the new ban hits banks as well as dealers, this means the
competitive pressure on dealers’ finance margins may well ease, and
cause penetration rates of PoS finance to rise,” he added.
But in the short term, it is clear that this is news that the
motor retail industry could have done without.
A special report on PPI will appear in the February issue of
Motor Finance
