The Office of Fair Trading is to investigate the way in which lenders sell payment protection insurance (PPI) at hugely inflated prices to customers taking out mortgages, personal loans and credit cards.

PPI covers repayments when policyholders are too sick to work, or have lost their jobs. If bought independently by the right people at the right price after the right advice, PPI is fine. But few buy it that way. Most policies are bought through banks and building societies, whose total profits benefit to a staggering degree from the resulting commission.

So subtle is the sales process that some borrowers assume PPI is mandatory and other borrowers are not even aware they have it. An awful lot of people have little idea of what they're covered for - policy details aren't routinely handed out - and many are unaware they either don't need the cover or will never be able to claim on the policy.

This tendency by lenders to add PPI premiums to loans is one of the practices now under OFT scrutiny. In one example, given by uSwitch, the online price comparison service, interest charged on a £10,000 five-year loan from Bank of Scotland rockets from just 6.4 per cent to 22.7 per cent with the inclusion of PPI premiums, thus increasing the total cost of the loan from £11,661 to an eye-watering £16,114.

Lloyds insists that cardholders are now properly advised and receive full policy details, but admits that this was not the case four years ago. However, my local branch had no policy documents (staff advised calling the phone number on the credit card) and, even when I got hold of a copy, I still had to ask how much would be repaid each month (5 per cent of the debt, apparently - and total repayment after 11 months).

 

 

 

 

 

 

 

 

 

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