It is believed that people who buy Payment Protection Insurance (PPI) are charged in excess of about £1.4bn a year according to the Competition Commission. They said that the reason for this extreme form of overcharging was due to a lack of competition, because of the fact that PPI was added on top of the loans it protected.

The Commission is proposing that firms may be prohibited from selling PPI policies to customers whenever they take out their loans. PPI is insurance that covers loan repayments, if the customer loses their initial form of income due to circumstances such as illness or unemployment.

The Commission also confirmed that they are contemplating enforcing short-term price limits on their policies, until competition begins to reduce their prices. Peter Davis: the commission’s deputy chairman said that there were severe complications that accompanied the sale of PPI policies, with a low percentage of competition amongst providers leading to the high prices.

He said “The way PPI is sold as an add on to a loan or other credit product means distributors escape the pressure they should face from competing suppliers.”