Banks accused of charging customers higher rates to cover losses on sale of PPI
Banks are expected to charge higher rates on personal loans, credit cards and fee paying accounts to recoup lost profits.
They suggested it was "an inevitable consequence" that the money banks made from this type of insurance would go down.
The Competition Commission has announced that it is banning the sale of single-premium payment protection insurance, which is where the premiums are added to the debt being taken out.
It also plans to introduce a number of other measures to boost competition in the market, including banning the sale of PPI alongside credit cards, loans and mortgages, with providers instead having to wait for seven days before they can contact customers to sell them the insurance.
As a result, banks will need to find that lost revenue elsewhere, by charging customers higher rates on financial products, experts said.
Brian Brown, head of research at Defaqto, explained: "We are seeing historically low interest rates but banks are keeping their margins on personal loans, credit cards and fee paying accounts. Part of that is that they are not making money from PPI and need to make it other ways."
He suggested that as much as a third of the rates currently available on personal loans covers the losses stemming from providers introducing changes to the sale of this type of insurance.
Mr Brown said: "We are looking at a significant amount – a couple of billion pounds across the industry."
A spokesman for the competition commission said: "Our final report into PPI published earlier this year did state our intention to ban single premium policies, alongside other measures such as a ban on selling PPI at the point of sale. However this report is now the subject of an appeal and the measures planned have not yet come into force."
But he added: "It is worth noting in this context that our report did find the main providers of PPI have been making very large profits from its sale."
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