The payment protection con

BANKS are ripping off consumers by pressuring people to take out payment protection insurance (PPI) when they apply for loans and credit cards.

Aggressive selling techniques are pushing consumers into buying policies that are expensive and can often offer little cover, making huge profits for the banking industry.

Richard Mason, director of insuresupermarket.com, claims PPI can add as much as £1,570 to a £7,500 loan over three years, but consumers only need to pay a fifth of that for protection.

He said: 'Payment protection insurance is probably the biggest scandal in financial services after pensions and endowments.'

According to consumer watchdog Which?, personal loan companies make at least £1bn in commission by selling PPI. Its report into the industry found loan companies routinely included the cost of PPI in quotes, often failing to inform the customer.

Newcastle-based compliance worker Pauline Milligan was a target of this tactic. She is now paying off her Egg loan in full in protest after becoming angry at the manner in which the company tried to make her take out PPI when she applied for a top-up loan. Pauline said the company was condescending and aggressive in their handling of the application.

She said: 'Egg gave us the monthly repayment figure, which included the payment protection products, which we repeatedly said we didn't want.

'When we said we didn't want it, they immediately went on the hard sales tactics, asking what we would do if either my husband or I became ill or lost our jobs. There was no mention of what the insurance actually protected.'

Louise Moore, a 27-year-old recruitment consultant from London, was pressured into taking out PPI when she applied for a £7,500 loan with the Alliance and Leicester.

She said: 'The salesperson seem to imply that I wouldn't be accepted for the loan unless I had the protection, so at the time I agreed to it even though I didn't want it.'

However, after getting advice from the British Bankers Association, she went back to the company and asked whether acceptance of the application was dependent on taking out PPI.

The salesperson admitted it wasn't and removed the insurance from her application. 'I felt tricked and pressured into getting this insurance and if I hadn't checked it out I would have been lumbered with it now.'

Which? spokeswoman Naomi Watson claimed banks are pushing PPI because the margins on their loans are minimal. She said: 'Some lenders are offering rates of 5.75% or 6% and it's very hard to make money on that. Therefore, they are pushing other products like PPI.'

To make matters, the insurance protection has numerous holes. If you are self-employed or have had a serious illness then you aren't covered. In addition, if you lose your job or are ill then the policies only cover the minimum monthly payment, and only for a set period of time.

Which? says it is more beneficial for consumers to take out a simple income protection policy, which would pay them a proportion of their salary if they become ill or lost their job. Payprotect's income protection insurance costs around £18 a month to protect half of the gross monthly income of somebody earning £30,000 a year.

The Financial Services Authority took over regulation of the general insurance industry in January, which should improve protection for consumers. Lenders must now provide a clear Key Facts Indicator outline exactly what the policy covers and exclusions.

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