Consumers and consumer protection organisations are increasingly putting pressure on financial providers to make the payment protection insurance (PPI) market as transparent as possible, in order to help consumers gain a better understanding of their financial positions. William Amos, head of retail enforcement at the Financial Services Authority (FSA), warned consumers against financial providers that use pressure sales tactics in order to encourage customers to buy PPI, referencing a recent case in which the FSA had fined online firm Loans.co.uk £455,000 for taking advantage of its PPI customers.

Mr Amos, speaking on BBC Radio Five Live's Wake Up to Money programme, said the fine was enforced because Loans.co.uk had failed to adequately explain what PPI policies cover - as well as what they did not cover. He said:

"It's important when customers go in to buy this product that they understand that they may already have existing cover."

Mr Amos further warned that the FSA could fine other companies for similar practices, suggesting that PPI transparency was an area of financial practice that the organisation took "very seriously". Margaret Cole, the FSA's director of enforcement, further commented:

"Payment protection insurance can provide valuable protection against changes in personal circumstance. But customers should come away from the sale having been given the best possible information to understand that the payment protection insurance is optional, what the policy will and will not cover and how much it costs."

PPI policies have recently come under fire from the Office of Fair Trading (OFT) in the UK as well; in October 2006, the OFT declared that payment protection insurance was failing consumers and recommended that it be investigated by the Competition Commission. PPI, which essentially offers borrowers a security net by guaranteeing their debt repayments in the event of an accident, sickness or unemployment was blasted by the OFT as a policy which was "overly complex", of "poor value" and one which provided "less protection than customers think".

The OFT's damning conclusions on the role of PPI in today's financial market comes after a six month investigation into the PPI industry, which is currently worth around £5.5 billion. John Fingleton, chief executive of the OFT, said:

"Following the work we have undertaken, it is clear that many customers are failed by PPI. There is limited evidence the industry is taking steps to improve the situation, but we believe they will not make major improvements to competition in the market. Given our evidence and the scale of this market, our provisional view is that it would be appropriate for the Competition Commission to investigate further."

While many insurance providers understand the problems and are seeking to address the situation, critics of PPI have argued that generally this type of payment insurance is often overpriced and frequently mis-sold to people who wouldn't be able to claim its benefits if they needed to. The OFT's findings re-emphasise the need for people to choose their insurance carefully, utilise consumer insurance comparison sites, and make use of consumer financial information sites like the FSA. To date, banks have remained curiously silent on the OFT's decision; currently, the banks that earn the most profit from PPI are Lloyds TSB, HBOS, Northern Rock and Barclays.

About the author:
Andrew Regan is an online journalist who enjoys socialising at his local rugby and cricket clubs.