Borrowers 'still misled over PPI'

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Payment protection insurance: Expensive and difficult to make a claim on Gabriel Szabo/Newscast

Borrowers are still being misled into buying payment protection insurance (PPI) when they take out credit cards, despite moves to make sales more transparent, it was claimed today.

The consumer group Which? said more than one in 10 people applying for credit cards believed they had more chance of being accepted if they took out the insurance.

Some of these borrowers even believed their application was conditional on buying PPI.

Just over 9.8 million people in the UK have PPI attached to their credit cards, and Which? said its survey suggested around 1.3 million could have been misled into buying it.

The insurance, which is sold alongside credit cards and loans, is designed to cover repayments if the policyholder is made redundant or is unable to work because of an accident or sickness.

However, it has been criticised for being expensive and difficult to make a successful claim on - only around 11% of the money paid for policies is ever paid out to customers through claims, compared with 82% on motor insurance policies.

With policies costing each customer an average of £127.60 a year, Which? said millions of pounds was being wasted by consumers taking up the insurance.

"Credit card PPI is a modern day snake oil - it's a useless product, expensive, and poorly designed," said Doug Taylor, personal finance campaigner at Which?.

"In this time of economic uncertainty, people are effectively throwing away £970m each year, when they should be encouraged to seek independent financial advice about protecting their finances as a whole."

Evidence of mis-selling

Credit card sales are the biggest part of the PPI market after personal loans, with 22% of policies sold to those applying for cards.

Which? said 32% of people it questioned had taken the cover when applying for a card, with 28% saying they had been told by the lender it was a good idea to do so.

It said it had not looked into whether the cover was being mis-sold, but recent investigations by the Financial Services Authority have found evidence of mis-selling on policies linked to personal loans.

The Competition Commission is still part way through an investigation into the PPI market, which could result in a crackdown on sales.

A spokesman for Which? said the organisation hoped the inquiry would lead to new rules preventing lenders from selling PPI at the same time as other products, or forcing them to use only qualified financial advisers to sell the cover.

Consumers who have bought PPI with a credit card but already have other forms of cover, or would be excluded from making a claim, can cancel their policies without penalty.

Those who have been mis-sold the cover, for example the self-employed who would be excluded from payouts, can use our template letter to reclaim any premiums they have already paid.