Kudos to Nationwide for payment protection insurance stance
MORTGAGE STRATEGY - 27TH AUGUST 2007
The Financial Services Authority is wrapping up the third and final phase of its exhaustive research into payment protection insurance sales and is due to report next month.
Its final report is likely to be comprehensive and point out the major pitfalls of payment protection insurance. But you only have to read the regular missives from Simon Burgess, managing director of Britishinsurance.com, in this magazine's Letters pages to know where the pitfalls lie and from the replies his letters generate, what the industry thinks about payment protection insurance.
There's no need for me to go into it in detail but the gist of the argument is that payment protection insurance is often mis-sold and overpriced. You could even call it a rip-off and Burgess probably has several times.
Payment protection insurance is often sold at the beginning of a long-term loan and is paid for through a single premium spread across its term, which means consumers pay interest for years on top of the rip-off price.
The FSA report is likely to agree with some of these points. I'd be shocked if it uses the term rip-off, but mis-sold could make an appearance.
So I'm delighted that other organisations besides the regulator are taking the lead in tackling payment protection insurance mis-selling. Nationwide is regaining its footing on the moral high ground by calling a halt to its payment protection insurance sales.
This is a brave step for any lender. It is standing up in the boat and rocking it to the call of 'we are guilty and we are not alone'. How many other firms will have the guts to admit their wrongdoings in such a public way?
Other lenders might think Nationwide is taking a risk but what the UK's biggest society has done makes sense.
When you know the FSA is snooping around, it's prudent to do your own mystery shopping exercise to find out what's happening before the regulator slaps your wrist or you read about it in the Daily Mail.
But I can't believe that Nationwide is the only organisation to have taken this step.
While other lenders are either pretending that the results of their research aren't that bad or are procrastinating, Nationwide has taken decisive action.
And its bravery could stand it in good stead if the FSA decides to levy fines for the poor payment protection insurance practice its mystery shoppers uncover.
