Better deal for payment insurance

Customers will benefit from PPI changes says the FSA

People with payment protection insurance policies (PPI) will have unfair "nil refund" clauses removed from their contracts.

The Financial Services Authority (FSA) has struck a deal with the banking and insurance industry to remove these clauses from single premium policies.

PPI has been under intense criticism from the FSA and other authorities.

The insurance is supposed to pay out if someone cannot repay a loan, but it has often been mis-sold.

In the past few months, several banks have been hit with large fines running into hundreds of thousands of pounds levied by the FSA.

In February, the Competition Commission was asked to investigate the industry after an investigation lasting nearly a year by the Office of Fair Trading.

"This is an excellent outcome that delivers concrete benefits for consumers," said Clive Briault of the FSA's deal.

"When properly sold, PPI can provide valuable protection. But we have been particularly concerned with so called 'nil refund terms'," he said.

Protection racket

Consumer organisations have condemned the widespread selling of PPI polices - which are very profitable for the banks and insurance companies - as little more than a protection racket.

Studies have shown they are sometimes sold to people who do not need them and who, in some cases, may not even be able to claim on them anyway.

The "nil refund" clauses, about which the FSA has been particularly critical, mean that any customer who buys a policy with a single premium up front cannot get a refund if it is cancelled.

The FSA takes a dim view of this, because the reasons for cancellation might be good ones, such as the customer repaying the associated loan early or no longer being able to make claims because of a change in circumstances.

Such clauses will no longer be inserted in new PPI contracts and will be struck from existing ones.

The FSA pointed out, however, that customers might still not receive a refund if they cancel their policy very close to the end of its term, or if they have already made a successful claim.

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