British banks could face sanctions over loan cover

Sunday, May 25, 2008

LONDON (Thomson Financial) - A Competition Commission investigation will soon unveil possible sanctions against Britain's biggest banks over up to 1.5 billion pounds of alleged excess profits made from the sale of insurance to cover customers against their failure to pay off personal loans due to sickness and unemployment, reported the FT Weekend newspaper citing lawyers and industry insiders.

However, bankers told the paper that action by the commission to restrict or remove their ability to sell so-called payment protection insurance would be likely to lead them to seek to recoup lost revenue by raising charges in other areas, not least by raising loan interest rates.

One banker said: "Personal loan rates have been uneconomic for a while.

Rates are likely to go up if PPI is sold separately." Despite industry lobbying, the paper says that the commission will stick close to its provisional conclusion this year that banks selling the insurance are earning as much as 1.5 billion pounds a year above a reasonable rate of return by selling to buyers who are in effect a captive market.

Source

http://www.cnbc.com