This is Money Blog

PPI: Industry outrage should not halt this victory

The financial services industry has various euphemisms to deploy when it wishes to display its displeasure at some new regulatory constraint thrown its way.

Usually, when a trade body expresses 'surprise' at some proposal that could hit its members' pockets, it can be translated roughly as 'you've got to be kidding'.

When a group 'agrees - up to a point', it actually means 'not on your life'. And a pledge to 'work closely with the authorities on these proposals', is code for 'over our dead bodies, sunshine.'

By this measure, you imagine the sentiments behind the press releases pinged off in response to the Competition Commission's plans for payment protection insurance (PPI) would have been unprintable.

They range from the relatively measured 'FLA highly disappointed with Commission's PPI recommendations,' from the Finance and Leasing Association, through the vaguely hysterical 'PPI ban is devastating for borrowers,' from the Association of British Insurers, to the frothing 'Competition Commission simply wrong on PPI,' from the British Bankers' Association.

So what has got so firmly up their noses?

Today the Competition Commission published it’s provisional proposals for PPI. It is the beginning of the end of its work on PPI that started in February 2007. PPI is the insurance sold alongside loans, credit cards and finance packages to cover repayments if the borrower is unable to work through accident, sickness or some cases of unemployment.

The charge list against PPI is long but includes, in no particular order, that it is overpriced, sold to people that can never claim on it, in many cases cannot be cancelled or refunded, will not cover many of the most common causes for unemployment, may pay out only a fraction of the amount owed and has been forced on to customers with pushy sales tactics, sometimes without their knowledge.

This is Money has argued for change in the PPI market since 2002 and later launched a campaign on the issue. We regard the proposed changes, if enacted, as a significant victory.

As insurance correspondent, I have covered several cases of customers who have suffered huge losses as a result of PPI policies that were mis-sold or could not be cancelled.

We have even produced a guide and template letters for anyone that thinks they may be able to reclaim PPI premiums.

Chief among the 'remedies' the commission proposes is that PPI may no longer be sold at the same time as the credit or loan being taken out.

Sellers will have to wait 14 days before they can re-contact borrowers to see if they want to also buy the insurance, rather than offering it when the customer takes the loan.

A small change you might think, but it will make a huge impact. If carried out, it means that the PPI sellers that have made huge profits out of the product (banks, shops, credit card lenders, car salesmen) will now have to rely on the customer proactively choosing PPI. They will no longer be able to apply sales processes that have often left borrowers feeling they have no choice but to take the insurance.

It also means that customers will be better able to compare prices for PPI across the whole market. Buying the insurance from an independent seller, one that is not also selling the accompanying credit, is much cheaper so the traditional sellers that have enjoyed the run of the market will likely have to lower their prices to compete. 

The trade bodies wail that this change will effectively kill the market for PPI at a time when unemployment is rising. PPI may be flawed, they say, but we should not throw the baby out with the bathwater.

Luke warm welcomes have also come from the price comparison websites. These sites have cast themselves in the role of 'consumer champion' and, as such, have acknowledged the benefits consumers could reap from the changes. Yet they, too, have expressed fears that fewer policies will be sold, reducing the commission they make, and that the costs of loans may have to rise if the revenue from PPI is removed from lenders.

Being pragmatic, it is probably fair to say far fewer PPI policies will be sold if these changes come to pass.

But this betrays the fact that borrowers don’t actually see the need for this insurance unless it is being aggressively sold to them. Loans rates may have to rise but at least prices will then be transparent. At present, the financially savvy avoid PPI, benefitting from cheaper rates while the rest subsidise them, partly through unnecessary PPI.

If rising unemployment is making PPI more necessary, consumers will surely appreciate its value and will seek it out for themselves. The Commission’s proposals allow for this.

Or else, they will see that PPI sold on the terms that sellers have been offering is grossly over-priced and brings limited benefits. In which case, the market deserves to die.

- Ed Monk, News Editor, This is Money

A wolf in sheep’s clothing?

Clued-up consumers have one more weapon in their armoury when they’re looking for insurance. But should they trust it?

Zuzzid.co.uk is a site that lets the public rate, and slate, insurance companies. Blurb on the site explains that ‘Zuzzid’s community helps insurance customers get the best deals by letting them help each other’.

The design of Zuzzid chimes with the current trend for simple, pared down sites with a hint of the homemade. Note the Facebook-style logo and almost amateurish typeface. It is the counter-intuitive truth of the internet these days that we are more likely to trust something if we think it’s come from one man in his bedroom, rather than a multi-national company.

Zuzzid has a tool that compares the features of different insurance products and a price comparison tool that shows you what other users actually pay for their insurance. It’s an interesting spin on the usual comparisons that list prices based on a number of assumptions, where companies can finesse their prices to appear competitive in the best-buy tables. 

So far, so benevolent.

The problem with Zuzzid is revealed in the small print at the bottom of the page – ‘© 2006 Norwich Union. All rights reserved.’

Yep, Zuzzid is paid for and provided by Norwich Union, the UK’s largest general insurer. It was launched earlier this year but unlike most of the actions of a large plc, there was no fanfare to accompany the launch of Zuzzid, no press releases from Norwich Union. It seems neither Norwich Union nor Zuzzid want to shout about the connection.

But should this alone stop Zuzzid from being a useful, trustworthy resource for consumers?

Well, while Zuzzid is paid for by Norwich Union, the site is run and monitored by web research company Virtual Surveys, who assured me that they are entirely independent of Norwich Union. Norwich Union themselves said that they have no interest in influencing the content of Zuzzid, and that the site is an exercise in gathering the genuine views of customers – theirs and others – to help improve service and generate ideas.

But how, then, should we react to the Zuzzid Top Provider League Tables that puts Norwich Union at the top of the table for motor insurance, top for life insurance, second for home insurance, and second in the overall ‘Insurance Top Six’?

Am I alone in being suspicious of user comments on the Zuzzid message boards such as -  ‘NU Direct to the rescue… unlike the other insurers I spoke to (The AA, More Th>N, Hastings Direct…) who will only honour your (no claims bonus) for 2 years of not being insured, NU Direct gives you 3 years grace!’

And – ‘I would like to big up Norwich Union “Pay as you Drive”. As someone who only drives a few times a week this has been a revolution. My insurance premium reduced by over half plus the level of cover is top notch.’

To their credit, the team at Zuzzid appears ready to discuss the independence issue openly with users, while Norwich Union points out that some traditional comparison sites are funded by insurers.

Have a look for yourself. Make your own mind up.

I’m inclined to agree with this Zuzzid user – ‘How stupid – if they are in charge why should we trust what is allowed to be written on here? If they look good everyone will think that is only coz they own the forum – if they look bad everyone will be suspicious that they could be looking a lot worse if we knew the truth about the items posted.’

Ed Monk, This is Money

Beware the ducks - the problems of a place in the sun

I was recently lucky enough to spend a few days at the holiday home of friends in rural France.

They have pursued a path that many Brits feel will provide the lifestyle, and wealth, they want in retirement.

While by no means super-rich, my friends have benefited like many of their contemporaries from decent retirement packages, rising house prices in the UK and some inheritance. It is these that enabled them to buy the place in France three years ago, and that are now paying for renovations to it.

Over dinner one evening they explained to me some of the little, and not so little, obstacles they have had to overcome in carrying out their plans.

Now, this is no foreign home horror story. There have been no dodgy contracts, no conmen, no land repossessed from beneath them. But their story is, I think, a reflection of the problems Brits have to overcome if they want to follow the dream of living abroad in retirement, and of the perseverance it takes to make a success of it.

Renovating has meant both dealing with local tradesman and undertaking some of the work themselves. It seems French builders share the time keeping skills of British builders and my friends quickly learned that deadlines are regarded only as vague suggestions of when work should be completed.

But this is not a reflection on the skills, or application, of the builders. By all accounts the work has been to a very high standard and, when they do turn up, they work from sunrise to sunset. The delays are largely down to limited working hours permitted in France and the number of public holidays – there are five in May alone.

So, lesson one for aspiring foreign homeowners: don’t expect building work to be done on time. Factor in for weeks, or even months, of delays and be prepared to live in dust-covered mayhem in the meantime.

Carrying out renovation work for themselves has also brought problems unfamiliar to the average British DIYer. Not least of which was the discovery of the nest of a Fouine (a stone marten - like a large weasel) in the roof of an outbuilding. Clearing it involved the removal, by hand, of several chicken corpses in varying states of decomposition.

And the problems haven’t stopped with building work. Perhaps most worrying of all has been the emergence of a landowner and general bigwig referred to by locals only as ‘Le Comte’ - The Count.

Neighbours contacted my friends to explain that The Count, who owns the land surrounding their property, was looking to sell. Worst than that, he was looking to sell to a duck farmer.   

Ducks are the worst nextdoor neighbours you could think of. Noisy, smelly and housed in ugly warehouses, they threaten to spoil the peace and views that attracted my friends to the property in the first place.      

When it was communicated that my friends could, of course, make an offer for the land themselves, it became apparent that the duck farm was most likely a ruse to coerce them into buying the land from The Count at an inflated price.

Ruse or not, they faced having to make buy the land or risk thousand being wiped from the value of their property.

They have reluctantly decided to make an offer, reasoning that any change in the current planning permission could increase the value ten-fold. But working out a fair price for the land has meant boning up on everything from French land usage to farm irrigation. What they settled on was significantly below the price being quoted so, rather than give in, they have decided to stare The Count in the eye and offer the lower price.

As I left, they were awaiting his response. The Counter offer, if you will.

The problems, large and small, will no doubt continue as they take the incremental steps towards their dream of a foreign home retirement. Brits thinking of pursuing the same path should be prepared to take their own, tiring, steps.

Ed Monk, This is Money

What's in a name? - Win 30GB video iPod

I’ve always thought a good name never does a business any harm, and in some cases can be its making.

For years I used to get my haircut in Maidstone in a shop called ‘The Bas***d Barber’. I believe it’s still going strong and I doubt its success has anything to do with the quality (or cleanliness) of the establishment.

You can forgive a lot of things if a business has shown some flair in the name or slogan it uses. Like building firm Patel & Sons that uses the slogan ‘You’ve tried the cowboys, now try the Indians’.

Or the camping shop who, in the depths of December, slashed prices with a sign proclaiming ‘Now is the winter of our discount tents.’

Or the south coast takeaway called ‘Brighton Wok’.

Or the hair salon called ‘Curl up & Dye’.

If you know of any similarly named businesses you can enter them into a new competition and win yourself a video iPod. The insurer MoreThan Business is hoping to find Britain’s most creative small business names and is inviting nominations at the website www.whatsinaname.uk.com.

It doesn’t have to be your business, you only have to know the name and location. There are ten prizes of a year’s free insurance and a 30GB video iPod. So why not enter and gain from someone else’s ingenuity.

Ed Monk, This is Money

Pink with embarrassment

Ten days holiday in Florida has left me pink. Mr Pink to be exact.

Remember that scene from Reservoir Dogs when Steve Buscemi – as Mr Pink - argues with his fellow gangsters about why he won’t tip the waitress? If you don't mind some colourful language, here it is.

It’s a conversation that has run through my head a lot in the past two weeks. At least every time we came to pay for a meal. Or a taxi journey. Or our car being parked for us. Or our room being cleaned.

You see, America has a tipping culture. It has come to be expected that the customer will tip the worker that serves them. In fact not doing so is seen as open rudeness. Tips are not an occasional perk, but are relied upon by employees in certain jobs to make up their wage. (Mr White’s argument in the movie.)

During our ten days in Florida we tipped waiters and waitresses, cab drivers, tour guides, valet parking assistants, hotel porters and cleaners. Each time I tried to decide if I agreed with Mr Pink or not.

My girlfriend and I both agreed that the levels of hospitality and helpfulness we received were far higher than we have come to expect in the UK and I have no doubt that this is down to staff hoping to bump-up their tip. On this point the tip as an incentive works well.

But each time I coughed up I couldn’t help feeling that I had been not-so-subtly pressured into it. However ‘discretionary’ a charge is described as there is no doubt that avoiding embarrassment plays a part.

The amount to tip, and which jobs are deemed worthy of one, is never defined. While some general rules exist – for example 15% of the cost of a meal in a restaurant – there are endless conventions that patrons are expected to bear in mind when it comes to paying up.

A hotel we stayed in left a helpful leaflet for 'out-of-towners' explaining that it is considered fair to tip the porter $2 for each bag they have carried for you and to leave $1 per person, per night, for the hotel chamber maids. Parking assistants should, we were told, be tipped $2 each time they collected your car and a barman should expect 20% of the value of the bill as a tip.

All this can prove difficult for the wide-eyed tourist. Even the method of handing over the cash was the subject of uncertainty. We tried everything from clumsily asking a porter how much we should tip him  - ‘That’s really up to you, sir’ - to conspiratorially palming a folded $10 bill into the hand of a bemused tour guide – ‘Oh my!’

Nothing we tried quite felt correct.

When we finally got back to our front door in London I was glad that I could take the change from the cab driver with no embarrassment whatsoever.

Ed Monk, This is Money

Our fuel bills map and The 30 Second Rule

Just a quick note about a new feature here at This is Money – our interactive fuel bills map.

We have always published the latest prices from the different gas and electricity suppliers and have written about the importance of switching your supplier to get the best price.

But it has always been difficult to report accurately what the savings will be because it depends on where you live and who already supplies your energy. The best advice has been to tell individuals to log onto switching sites, enter their details and compare the best prices available.

The process is by no means difficult but it does fall foul of The 30 Second Rule. This is the principle that says most people haven’t got the patience to stick with a website longer than half a minute if they don’t get the information they need.

No doubt there are many people that will happily punch in their details all day long if it means shaving a few quid off their bills, but those less savvy with the internet are less inclined to do so. It helps explain why half of the households in the UK still haven’t switched away from their original energy suppliers – despite the savings that can be made.

The new map is made with these people in mind. They don’t have to punch in all the details of where they live, how much gas and electricity they use or whether they want to pay by direct debit of a cheque.

They can simply click on the region they live in – it is divided up according to the old electricity regions that still influence the price of bills – and see how the amount they currently pay compares with the best deals on the market. A number of different prices are given so that they can see what effect paying by direct debit or getting an online tariff will have.

It takes just one click to get a decent idea of the best prices available and should give reluctant switchers the encouragement to go that step further and change their supplier.

We will update the map whenever suppliers change their prices.

Have a look for yourself. Try clicking on regions where you have friends or relatives that have not switched – those without the internet, the elderly in particular, won’t be able to check for themselves but they are often the ones that can benefit the most from switching.

Ed Monk, This is Money

Calling a spade an operational failing

One story this week betrayed the lengths some firms will go to save face when they are exposed for treating their customers shabbily.

On Tuesday we reported on the £610,000 fine dished out to GE Capital Bank for failing to stick to Financial Services Authority rules on the sale of payment protection insurance.

The fine was significant because GECB is behind the card protection policies that are sold alongside store cards from some of the High Streets’ biggest names. Asda, BHS, and House of Fraser are among those that sell GECB card protection policies with their store cards.

The fine was announced in an FSA statement and quickly seized upon by the media.
In it, the FSA explained that GECB had not provided important information that customers needed in order to decide if they should take the card protection.

Reports, including ours, identified that the failure to disclose this information could lead to mis-selling of these insurance polices and that card holders might be entitled to compensation.

At this point, the GECB counter-attack swung into action. A note was quickly sent out to offending journalists insisting that ‘the FSA news release and its Final Notice makes it clear that the fine relates to non-compliance.  At no point do they say we have mis-sold policies.’

You can understand why GECB would want to distance themselves as far as possible from accusations of mis-selling. ‘Mis-selling’ is the Indian sign for financial companies – the buzzword applied to faceless corporations that use underhand sales techniques to push costly products onto the public.

So why were so many in the press quick to brand this a case of mis-selling? Shouldn’t we have stuck to the line favoured by GECB that the offence here was ‘operational failings…regarding compliance with new regulations governing the sale of insurance’?

Well, the FSA took its decision to fine GECB after investigating how policies were sold.

The Final Notice issued by the FSA explains how retail assistants  - that’s the staff behind the counter in stores like Topshop and Miss Selfridge – were paid incentives to sell these insurance policies. Incentives were paid whether sales were within the rules or not.

The sales assistants were supposed to draw customers’ attention to important policy details that would help them decide if the insurance was for them or not. GECB’s own assessment of this process in 2005 showed that between 57% and 76% of sales assistants were not doing this.

That year there were 5000 complaints about card protection sales.

But not all policies were sold face-to-face by staff inside the stores. About 5% of sales were made over the phone by GECB staff who would ring people who had taken store cards but had chosen not to take the insurance.

These calls were monitored by GECB for 25 weeks. Of 2,517 calls monitored, 1,761, or 70%, failed to stick to the firms’ own rules for selling the insurance. In 13 of the 25 weeks the failure rate was more than 90%.

The FSA themselves listened to 196 recorded sales calls. Every one of the 196 breached FSA rules for selling PPI, and most breached the rules more than once. Telesales staff provided false information – for example that the insurance had only four exclusions when in fact there were 12 – and some failed to get explicit consent from the customer before the insurance was applied.

GECB sold around 850,000 polices according to these practices. But please remember, at no point did the FSA say they have mis-sold polices.

- Ed Monk, This is Money

The Estate Agents strike back

I recently wrote about my success in negotiating with my estate agents for a lower rent on my new flat. Now I know that the agents were still to play their trump card.

It was only with the weekly rent settled upon that they revealed the extent of the charges and fees they wished me to pay for the privilege of dealing with them.

In total they were demanding £257.50 before we could move in. This is on top of the £2000+ we were paying as deposit and rent in advance.

The charges broke down as follows: £100 ‘agreement’ fee (excluding VAT, naturally); £94 ‘check-in’ fee; and £46 reference fee.

I challenged each of these but was told that they were absolutely necessary.
I particularly objected to the reference fee – if they or the landlord wants to check out the people they are dealing with, presumably to see that they are trustworthy, that’s their business – but they should pay for it.

In what other commercial transaction do you have to pay to prove your worthiness before you can hand over thousands of pounds?

The check-in fee was to pay for an inventory of the property before we moved in. I enquired as to whether I could do this myself but was told that a professional inventory would increase the likelihood of me getting my deposit back. It was for my protection.

This, in my view, is a tacit admission that they intend to keep hold of as much of the deposit as they can and that I am likely to be left out of pocket if I don’t pay this extra fee.

Finally, the ‘agreement’ fee was to pay for the ‘hours of work that goes in’ to facilitate my moving in. As far as I can see this amounted to issuing a standard copy of a tenancy agreement. When I questioned what this paid for the response was that ‘well, Foxtons charge £350’.

There was no option but to pay the charges or abandon the flat so, reluctantly, we coughed up.

And so to the day of the move. Despite all the charges, the ‘hours of work’ behind the scenes, we arrived to find the furnished flat we had agreed upon had no furniture and had not been cleaned. It is only now, three days later and after a stand-up row at the agent’s branch, that it has all been put straight.

It seems to me that estate agents are operating something approaching a racket. Why, exactly, do we need them? Why are they allowed to charge hundreds on top of the healthy percentages they take from rents and purchase prices?

Recent reports show that we are finally learning to use the internet to cut out these unpleasant middle-men and that some regulatory scrutiny may finally be applied.
It can’t come soon enough.   

- Ed Monk, This is Money

Estate agents - the Millwall of finance

Despite their reputation, I’ve always felt an affinity with estate agents. The reason being that both theirs and my jobs will regularly appear near the top of those ‘most despised professions’ lists that are reported in the papers.

Like the old Millwall football chant goes - ‘No one likes us, we don’t care’.
But my sympathy with estate agents has ended thanks to my recent attempts to rent a flat.

My girlfriend and I had viewed half a dozen or so properties before setting our hearts on a prime piece of South London, and negotiations for our moving-in began.

By coincidence, we have friends that live in the same terrace of houses as our chosen flat. Furthermore, the layout of their flat is exactly the same and it was arranged through the same estate agent. Yet they were paying £20 a week less in rent than ours was being offered for.

We quickly made an offer at the lower price, explaining that we were well aware of the market rate for such a property. We weren’t surprised when, a day or so later, the estate agent came back with a compromise – we could move in if we raised the offer by £10 a week.

My girlfriend, showing previously undiscovered negotiating skills, stuck to her guns – ‘£20 below the asking price or the deals off’.

And this is where our agent reverted to slippery, lying, treacherous type. It seemed, so they said, there was now a new mystery bidder for the flat!
What’s more, our mystery man was willing to pay as much as £5 below the weekly asking price – we needed to make a new bid at the full asking price or miss out.

By this time my girlfriend had warmed to her task and was having none of it. We would not be improving our offer.

Next, in a moronic move that betrayed their deception, the agent approached us to see if we would up our bid to £10 below the asking price. ‘Ah-ha!’ we cried. ‘What about the mystery bidder? He was willing to pay more than that, why not take his offer?’

It seemed the other bidder was not as real as previously thought. The agent eventually returned and said that our original offer - £20 below what they were asking  - had been accepted. We heard no more of Mr X.

The negotiations had worked. A bit of chutzpah from the Mrs was all it took. We had the flat we wanted and saved ourselves £1040 in rent for the year.

Bear our story in mind if you or yours are in negotiations with an estate agent. Its probably fair to say that any asking price you see can be negotiated and it’s worth asking. Remember that despite the smiles and the first-name-terms, agents are not there to be your friend. You might not like them, but they don’t care.

Ed Monk, This is Money

Just say no to chugs

News arrives this week that the dreaded ‘chuggers’ are adopting new guerrilla tactics to prise our bank details from us in the name of the less fortunate.

It seems we won’t even be safe in our own homes now the charity muggers have taken up door-to-door sales techniques to boost donations.

The problem this poses of course is that you can’t resort to the usual two-word response reserved for double-glazing salesman. Your average chugger is a harmless hippy-student-type with good manners and they are, after all, collecting for a good cause. It would be impossible to send them packing from your doorstep without feeling guilty about it afterwards.

So what can you do if you don’t want to inflict another monthly injury to your bank balance, but can’t face being rude to that nice chugger?

Here are a few techniques to employ when you get the knock on your front door…

• Welcome them, explaining that you are glad of the company having just completed a ten-stretch for GBH to an unexpected house guest.

• Ask for their home address and explain that you will pop in to sort out the Direct Debit tomorrow. If they are reluctant to hand it over, ask if this is because they prefer not to be hassled by perfect strangers at home.

• Answer the door naked.

• Explain that you would love to sign-up, but have not been allowed to have a bank account ever since you bought those ‘replicas’ on the internet.

• When they mention paying by Direct Debit, insist loudly that ‘Derek doesn’t live here!’ Repeat this over and over until they go away.

One, or a combination, of these techniques should ensure you doorstep stays chugger-free.

Ed Monk, This is Money