Loan Insurance

For those who are buying payment protection insurance for their home loans they may be paying too much. A study was recently completed that consumers who are paying for loan protection insurance are being charged 1.4 billion pounds a year over what is fair. The Commission looked into the loan insurance issue because of several complaints in the process. They found that the overcharging is mainly due to competition. It is the banks and building societies of the loan holder who are requiring and selling the payment protection insurance on loans. This means that the consumer is not allowed to shop around at other companies.

The Commission may demand that the banks be banned from selling the loan insurance to consumers when they take out a new loan. The insurance is to cover such things as unemployment, temporary leave, or ill health. The Commission is also talking about imposing a price limit on the insurance policy for loans.

Peter Davis, part of the Commission, spoke out about the problem. He feels that the loan insurance is high because of the lack of competition. It is sold as a secondary offer to the loan which means that the banks are putting pressure on the consumers to purchase the insurance. If the distributors had to face competition they would not be able to ask for such high prices.

The distributors of the loan insurance are not competing with one another. After an investigation the Office of Fair Trading was asked to get into the mix. They may be setting that level on the amount the companies can ask for.

The British Bankers Association took a look at the reports, only to find that they disagree. They don’t believe the consumers are being charged too much. However the Citizens Advice and the FSA are definitely in agreement with the commission.

Part of the issue is that the consumers are not allowed to back out of the insurance. The banks are pressuring them into taking the loan insurance and practically denying a loan if the consumer doesn’t take the loan protection. These strong arm policies are what have a lot of individuals complaining.

Back To Financial News June 2008

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