UK consumers face increased costs following PPI clampdown
Defaqto, a prominent UK financial research company, is warning UK consumers that they face the very real prospect of increased costs and rates following the recent clampdown by the Financial Services Authority (FSA) and the Competitions Committee into payment protection insurance (PPI) products.
Following last month's £610,000 FSA imposed fine on GE Capital Bank for failing to have in place adequate systems to ensure its staff were properly trained to sell PPI products, Defaqto argues that the ensuing regulatory clampdown on PPI products could be "bad news" for UK consumers and could go so far as to herald the end of "free" banking in the UK as lenders seek ways to compensate themselves for the lost earnings. Elements of such a policy can already be seen with Citibank’s recently announced introduction of a monthly £10 fee on its current accounts.
Following recent developments and fines being imposed on UK lenders, Defaqto say that it is highly likely that UK credit cardholders and those with unsecured personal loans will face the brunt of any increased costs and charges, including the prospect of high interest rates.
In the meantime, Brian Brown, head of insurance at Defaqto and the author of the report, says that it is likely that the number of PPI complaints to-date are merely the tip of the iceberg as consumers in the UK were either unaware that they could shop around for PPI products or look for alternative quotes.
As such, "Consumers are becoming more aware of all the problems starting to surface in the PPI market", Brown said. Brown went on to say that, "We [Defaqto] believe that there will be thousands more complaints about PPI over the next 12 months and if the PPI industry is to rebuild consumer confidence, it must act now."
The net result of an increase in the number of PPI complaints is likely to be that UK consumers face increased costs as UK lenders feel the squeeze on their profits and income from the fall-off in the sale of PPI products.
Nevertheless, improving the way in which PPI products are sold in the UK has been labeled a "key priority" by the FSA. Consequently, it is unlikely that the regulatory authority will back down merely because of the threat of increased costs and expenses to UK consumers by UK lenders who are the subject of an FSA investigation into the manner in which they sold their PPI products to UK consumers.
Richard Smith
21st February 2007
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