There is now a ban on PPI, payment premium insurance, the type of insurance that often accompanies loan agreements and that is added to the loan as a single payment, generating more interest for the banks and financial companies issuing such premiums. Banks and companies that miss sell customers loan insurance with single premiums have been castigated by the Financial Services Authority for doing so. The FSA has said that customers who have been advised that they need insurance in case they cannot pay off their loan have been treated unfairly by the lenders -this type of insurance is used for personal loans, credit cards and mortgages. The ways in which PPI is offered may vary from company to company, and some providers have even been guilty of adding such insurance to your repayments without telling you they have done so. Until recently companies have been very awkward about refunding any money you have paid on PPIs which is why the Financial Services Authority are now putting a stop to this practice.

Payment premium insurance has meant that the banks and finance companies have made a lot of money off of lenders. Commissions paid can be as much as seventy five percent of the total payment, which is outrageous and condemned by the FSA as sheer profiteering. Many banks and other lenders have now been fined by the FSA for treating customers in this way and charging them outrageous sums.
 

PPI has since led to a growth industry among companies who aim to get back the premiums that have been paid by their clients. Some banks and finance companies have misled customers into thinking that if they did not take out single premium insurance then they would not get their loan or credit card. These policies vary from 3 to £4,500, which is then added on to the original mortgage, loan or credit card agreement. Not only does this increase the size of the loan, it also means that companies then charge interest on the total amount, including the insurance premium.

Recently the Financial Services Authority has warned organizations that they will be stepping up their actions against such activities and want lenders to stop selling PPI policies for two weeks after the arrangement of the loan. This has led many of the big banks such as Lloyds TSB and Barclays to say that they will stop selling single block PPI with personal loans and the FSA hopes that other financial institutions will follow their lead.

The loss of such insurance sales will, industry sources say, increase the cost of lending to the consumer, and some lenders have already increased the margin on loans in response to the credit crunch. There are also warnings that consumers could find themselves in trouble if they fall ill or lose their job and are unable to repay what they owe.