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 has opted to ban sales of the cover at the point of sale
(PoS), citing a lack of information about alternatives.
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.
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The ban will radically change the PPI market, as
the “vast majority” of the 12 million 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.”
Motor 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.
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By GlobalDataPrevious punitive 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, not wishing to risk
falling foul of the FSA’s investigators.
Director-general of the Finance & Leasing
Association, Stephen Sklaroff deplored the decision, which he said
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 expert said that, in his view, the ban
could be good news for motor dealers – although not in the short
term.
“As the new ban starts to hit banks as well as
dealers, this means the competitive pressure on dealers’ finance
margins may well ease, and thus cause penetration rates of PoS
finance to rise,” he said.
But in the short term, this is news that the motor
retail industry could have done without.
See Rising from the ashes for more
on PPI
