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Tribunal quashes point of sale PPI ban

The Competition Commission must reconsider its ban on the sale of payment protection insurance (PPI) at the same time as a loan or credit, the Competition Appeal Tribunal has ruled. But the decision is not necessarily the end of the point of sale prohibition.

PPI covers payments due on credit products if the borrower cannot afford to pay because of an accident, sickness, unemployment or death. The vast majority of PPI is sold at the same time as a personal loan, credit card, mortgage or second mortgage.

In January 2009, following an extensive investigation into the UK PPI market, the Competition Commission concluded that credit providers and intermediaries face little competition when selling PPI products to their credit customers, with the result that consumers have less choice and pay higher prices than they would in a fully competitive market.

The Commission put forward a package of remedies to address the problem. The most controversial of these is to prohibit providers from selling PPI to the customer for seven days after a credit sale. PPI could only be sold during this period if the customer contacted the provider directly by telephone or online after 24 hours.

The Commission wants to implement the point of sale ban by 1st October 2010. Other measures on advertising and improving the information given to customers are due to come into effect next April.

But in a hearing before the Competition Appeal Tribunal last month, Barclays Bank (supported by Lloyds Banking Group and Shop Direct Group Financial Services) criticised the Commission's conclusion that prohibiting the sale of PPI at the same time as a loan or credit was a proportionate remedy.

Barclays argued that there was no evidential basis for justifying the point of sale ban. In particular, it said the Commission had failed to take into account the effect of the ban in terms of the loss of convenience for consumers, who would no longer be able to take out PPI when they arranged a loan or credit.

In its judgment of 16th October, the Tribunal dismissed claims that the Commission had failed properly to take into account recent changes affecting PPI, such as tighter regulation, a reduction in profitability and increased claim rates. No effective challenge could be made to the Commission's findings about the nature or seriousness of the lack of competition in the PPI market.

But it upheld Barclays' argument that the Commission should have taken into account the loss of convenience that would result from the prohibition when it was considering whether the remedy was proportionate to include in its package of remedies.

This failure was sufficiently material to require the point of sale ban to be quashed and remitted back to the Commission for reconsideration. However, the Tribunal left open the possibility of a ban.

"We have not, of course, concluded that the Commission could not by that process lawfully decide to include the [point of sale prohibition] as the result of that reconsideration," it said in its decision.

The Commission was also mildly criticised for failing to make clear the timescale in which the benefits of the ban would accrue and comments were made about certain aspects of its methodology. Neither issue, on its own, would have been enough to overturn the prohibition. The Commission, however, should now address them as part of its review.

Reacting to the Tribunal's decision, the Competition Commission said it would study the judgment closely before deciding on its next steps.

Alan Davis, a competition law expert at Pinsent Masons LLP, the law firm behind OUT-LAW.COM, said the decision was clearly a victory for Barclays, although not necessarily the last we will see of the point of sale ban.

"There is precedent for this," said Davis. "Tesco successfully appealed to the Competition Appeal Tribunal against the Competition Commission's proposal for a competition test for supermarket planning applications. The remedy was remitted to the Commission, which, after further analysis and review, reintroduced the remedy in slightly modified form and justified it by more detailed analysis."

"There may, however, be scope for interested parties to make further submissions to the Competition Commission on the convenience argument to try to influence the outcome," he said.

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