Britain’s financial regulator put a deadline on lenders’ sales of a form of payment-protection insurance that’s sold at the same time as an underlying loan with a single premium to repay.
The Financial Services Authority, which traditionally concentrates on how products are sold rather than on the product itself, took the rare step of writing to chief executive officers of financial firms today to tell them to stop selling so-called single-premium PPI by May 29. The London-based agency doesn’t think single-premium PPI buyers get a fair deal.
“This request is justified to bring an orderly withdrawal of single-premium PPI from the market,” Jon Pain, the FSA’s managing director of retail markets, wrote in the letter, which was also published today on the FSA’s Web site.
The FSA’s ban follows a decision by the U.K. antitrust regulator last month to outlaw by October 2010 single-premium PPI and to prohibit sales of the product at the same time as the underlying loan. The wider PPI market generates annual revenue of 5.5 billion pounds ($7.9 billion) for lenders.
The product is sold to cover loan repayments in the case of illness or unemployment. Five banks, including Barclays Plc (BARC) and Lloyds Banking Group Plc (LLOY), have already stopped selling single- premium PPI after 20 FSA enforcement cases, one of which resulted in a 7 million-pound fine on Banco Santander SA (SAN)’s Alliance & Leicester Plc for aggressive sales.
The Competition Commission last month refrained from an outright ban on PPI. The FSA said today that it continues to believe that PPI has a legitimate use.
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