Loan insurance consumers ‘overcharged by £1.4bn’

Consumers buying Payment Protection Insurance (PPI) are being overcharged by more than £1.4 billion a year, according to the Competition Commission.

A report published by the industry watchdog has found that a lack of competition is allowing many companies to charge higher prices by selling the insurance alongside a loan or other type of credit.

‘The way PPI is sold as an 'add-on' to a loan or other credit product means distributors escape the pressure they should face from competing suppliers,’ said Peter Davis, the Commission’s deputy chairman.

‘Distributors don't appear to compete much with each other on either price or quality of PPI; neither do they appear to do much direct advertising of PPI to win customers from each other,’ he added.

In light of its findings the Competition Commission has outlined several recommendations to improve market conditions. Suggested measures include alerting consumers to other similar products on the market and prohibiting the sale of PPI policies at the time a loan is taken out.

Around 6.5 million PPI policies are purchased every year, generating approximately £5bn of revenue for banks.