Retail PPI is a very narrowly defined product, comprising “credit account” finance, which is a running account credit facility provided by a retailer to a consumer to purchase goods from the retailer. The consumer typically buys goods at different times, such that their credit balance rises and falls over time. This can be the case, for example, on repayments on purchases through home shopping catalogues. The point-of-sale prohibition would also not apply to store cards, because that product fell outside the scope of the original CC inquiry.
The point-of-sale prohibition was one of the major remedies proposed in the CC’s market investigation report issued in January 2009. The CC determined that consumers were unable to adequately compare PPI policies or switch PPI policies to alternative providers and that selling PPI at point-of-sale restricted effective competition between PPI providers. The CC concluded that this resulted in higher prices and diminished choice for consumers and so imposed remedies including the point-of-sale prohibition.
The CC is consulting on its provisional decision and invites comments by 4 June 2010. This is a final chance for industry to put forward its point of view on the point-of-sale prohibition.
This provisional decision is the latest development in the CC’s market investigation into PPI. The CC expects to issue its final decision in July 2010.
The CC’s provisional decision
This provisional decision follows an in-depth review of the potential effects of point-of-sale prohibition on PPI. The CC overall concluded that PPI providers are overstating the loss of convenience [for consumers] that would result from prohibiting selling PPI during the credit sale.
One of the areas specifically considered by the CC was whether the point-of-sale prohibition could be effective for products where the premium tracks the credit balance. The CC found that the incumbency advantage held by retail PPI providers due to their being able to tailor premiums to outstanding credit balances was not significant. The evidence for this included a finding that many retail PPI customers would prefer a balance which does not vary by month and that several large distributors of credit card PPI have been developing policies which do not track outstanding balances.
The CC has therefore published a new notice of possible remedies for retail PPI. These include the remedies previously put forward, together with some new possible remedies. The new possible remedies are:
- an obligation to remind customers of their cancellation rights and of key messages;
- an obligation to renew retail PPI policies annually on an opt-in basis; and
- price caps
The proposed survival of the point-of-sale prohibition for the vast majority of PPI sales will come as a disappointment to many in the industry. The CC heard many arguments, including those considering the impact of the economic downturn on the selling of PPI but it appears to have been unsympathetic, noting that even in the middle of a recession, distributors were still making “significant excess profits” on the sale of PPI.
Broader PPI context
The point-of-sale prohibition is likely to have a significant impact on firms. Firms will need to reconsider their sales processes and strategies. This may lead to significant operational costs for firms in addition to the potential loss of revenue from fewer sales.
In addition to the CC, the Financial Services Authority (FSA) continues to examine PPI and the firms that produce and/or sell it. It continues to be a key issue for the FSA as noted in the FSA’s 2010/11 Business Plan. The FSA is in the final phase of consultation with firms in relation to the assessment of, and redress for, the significant levels of PPI complaints that firms are still receiving. The Financial Ombudsman Service (FOS) has recently published a consumer questionnaire that it will require consumers to complete in relation to complaints they refer to the FOS.