Reforming Payment Insurance Will Backfire On Borrowers
There are people within the financial sector that feel the government and regulatory organisations may be doing more harm than good, in relation to PPI. (payment protection insurance)
There has been a lot of controversy in recent times, relating to PPI. In view of the current financial climate, it is important that people borrow wisely, as much as it is important that the institutions that do the lending, also act in the same manner.
The whole concept of PPI, is to give the borrower a safety net, so that any difficulty in paying back the monies that they owe, is covered. Even so, PPI has been the much criticised subject on the tongue of many a person in the finance sector, of recent months. It has now been placed in the hands of the FSA, (financial Services Authority) and the CC, (Competition Commission) to sort it all out. There is a risk, with all this regulation flying around, that the situation could be rectified to the detriment of the consumer.
The whole argument is in relation to the manner in which PPI is sold, specifically the amount of information that the average consumer is provided with. Customers are unclear as to what it is that they are purchasing, and the amount that financial institutions charge for PPI, alongside borrowing, is much more than the cost of obtaining PPI from an independent insurance source. It has been rumoured that a lot of people that have attempted to claim from policies, have been unable to do so, due to clauses that they were not made aware of.
The bright idea being bandied about, is for PPI to not be offered to consumers, along with borrowing. The purpose of this, is so that the consumer can be given the opportunity to shop around, in order to get a cheaper deal. (the type of cheaper deal that the independent insurance companies offer. This is great in theory, but a lot of people are not going to bother to follow this up, and are going to leave themselves in a position whereby they are not covered, and end up forfeiting on their borrowing.
So as opposed to getting covered with one lump sum payment, that is added to the cost of the borrowing, (a right that the CC are considering removing) customers will find themselves in the less than salutary position of not being able to make their loan repayments.
The objective should surely be for the PPI market to be improved in a way, whereby people are still being provided with peace of mind. Ideally, any change to the market should be productive to the average consumer, as opposed to counter-productive. This is of the utmost importance, as the country teeters on the edge of an economic downturn.