Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 100-115)


10 OCTOBER 2006

  Q100  Chairman: Do you promise to write to us on that and say if all your members have signed up, because I think that is important? Some companies do not allow the payment protection insurance to be cancelled unless the loan is also repaid in full. Do you think that is reasonable?

  Mr Haddrill: That is not the gist of what we are trying to achieve, no.

  Q101  Chairman: I am trying to ask you this question.

  Mr Haddrill: If you are going to cancel it you will cancel it partway through before you have repaid the loan, I think. So I do not see why that would arise.

  Q102  Chairman: Let me try and make it simple. Some companies do not allow it to be cancelled unless the loan is repaid in full. Is that reasonable?

  Mr Satchell: I am sorry, Chairman, I do not know the answer to that. I would have to come back to you on that. It is not an area that I actually deal in.[2]

  Q103 Chairman: It does not seem reasonable, from our point of view. It does not seem reasonable to the consumers that contacted us on that.

  Mr Haddrill: I think the question here is: say you have a period of unemployment and in that period you cannot repay the loan. Does the insurance then kick in and sort of clear everything off or do you say: "Well, no, we won't do that; we will just pay the bit that cannot be repaid in that period of unemployment and then when the person goes back into work—"

  Q104  Chairman: The FSA have commented on this and what they have said is: "We consider such nil refund clauses may be unfair under the Unfair Terms in Consumer Contracts Regulations 1999."

  Mr Haddrill: I entirely agree with you that a nil refund approach is not—

  Q105  Chairman: On Payment Protection Insurance, the FSA in their examination of that have said that they found examples of rates as high as 80% of premiums, and the OFT have looked at it as well and they have found commission rates for Payment Protection Insurance can be around 66% for an unsecured loan. From our calculations this means that if I take a loan for £5,000 over 36 months with a total charge for insurance of £1,162 over £750 will be paid in commission. That seems pretty high. In common language it would indicate that the consumer is getting fleeced here.

  Mr Haddrill: I think the OFT has also found that there is a high level of competition and that there is no real detriment in terms of the underwriting of the product, which is what our members do.

  Q106  Chairman: If I was a consumer and I took a £5,000 loan over 36 months and I found I was paying £750 in commission, I would think I was getting done.

  Mr Haddrill: Yes, and I think some of those problems are arising downstream from the—

  Q107  Chairman: What does "downstream" mean?

  Mr Haddrill: I am sorry, through the distribution chain rather than by the product providers.

  Q108  Chairman: Again, as Angela is whispering to me, back to the business model. That seems almost unacceptably high commission. Do you not think so, Keith?

  Mr Satchell: This is an area where we have, effectively, factory gate pricing, and the distribution is added on, if you like, beyond the members.

  Q109  Chairman: So you think the model is wrong?

  Mr Satchell: Most of this is distributed through the banks with the insurers providing the product at a certain price into the major distributors. As Stephen said, across the market what the OFT found is that within the insurance underwriting the pricing actually works. So you have got a competitive—

  Q110  Chairman: I refer you back to the point earlier on by Mark about the FSA taking the industry forward and treating customers fairly. It is really for the FSA to pull the industry forward. Would you agree with that?

  Mr Satchell: I think the FSA has done a lot to promote confidence—

  Q111  Chairman: It does not seem to me to be in line with treating customers fairly if, again, you have a £5,000 loan over three years and you are paying £750 in commission.

  Mr Haddrill: I think what we are saying is we believe the insurance industry is treating customers fairly; what happens further down the distribution chain—

  Q112  Chairman: No, no. I do not think anybody agrees here with that, at the end of the day. "It is not my responsibility". You have set that up. At the end of the day we are focused on the consumer. So do not let us leave on a bad note here.

  Mr Haddrill: We do not favour very high levels of commission or charging for a product—

  Q113  Chairman: Would you be quite happy to be paying £750 commission on a £5,000 loan?

  Mr Haddrill: No.

  Q114  Chairman: I think that tells all. Last point: the OFT found prices for PPI for a five-year, £5,000 unsecured loan varied from £960 to £2,400 with very little obvious difference in the cover provided. In fact, it did say that prices for PPI differ greatly, which cannot be accounted for by differences in quality. Do you think many consumers have been over-charged for PPI?

  Mr Haddrill: I think it is clear from the evidence that some consumers have paid a lot for that protection. I think what the OFT is finding is that there is competition and acceptable pricing of the underwriting, and they are still looking at what is happening further down the chain.

  Q115  Chairman: Thanks very much, both for your written and oral evidence. It will be very helpful to us in our examination of the FSA on 24 October.

  Mr Haddrill: Thank you very much.

  Mr Satchell: Thank you.

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