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.
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
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"
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
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
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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