Banks accused over loan deals

TRADING Standards officials last night threatened to "name and shame" some of the largest high street banks if they continued to use appalling sales techniques when selling some personal loans.

During a fresh undercover operation, Suffolk Trading Standards discovered there had been little improvement in the way that Payment Protection Insurance (PPI) was being sold in some Ipswich banks.

It mounted an initial operation in March following a surge in the number of complaints about the insurance, and was "appalled" by some of the methods being used.

But with little improvement shown during its recent probe, the organisation has now passed its information on to the Financial Services Authority (FSA) and is warning banks it will name and shame if a third investigation does not reveal changes.

PPI is sold alongside personal loans or finance deals to protect payments if a customer loses their job.

But trading standards say many banks are automatically attaching the insurance to loans without making it clear to the consumer they have a choice on whether to buy it or not.

In many cases, the insurance nets the bank even more than the interest payments on the loan itself.

Some customers have had to part with £10,000 - on top of the repayment of a loan - for insurance they had no idea they had taken out.

Steve Greenfield, county trading standards officer, said: "Lenders are still not providing important financial information in a way which can be clearly understood by consumers.

"Although payment protection insurance is totally separate from the loan the two are being sold as a package.

"Although there have been some improvements the majority of our visits highlighted that there is still a long way to go before consumers are given all the information they need.

"Our findings will be passed on to the FSA (Financial Services Authority). If we were to carry out this exercise for a third time we would look to take further action, which could include prosecution or naming and shaming."

In the latest investigation, undercover trading standards officer re-visited the eight banks in Ipswich it had previously targeted, and inquired about taking out a £3,000 loan over three years.

They found knowledge about PPI was good but many of the banks chose not to explain it unless asked and there was little mention of cancellation rights, which was a problem last time round.

It was also suggested by some banks if you wanted to cancel PPI once you had it then you would have to take out a new loan to pay it all off.

Therefore, if the original loan was £3,000 and £500 for the PPI, you would need to take out a new loan for £3,500 to settle it.

Trading standards also found the insurance and loans were not clearly separated, and were being lumped together in terms of cost, making it difficult for the consumer to realise they were being sold two different products.

Only one of the lenders out of the eight recommended shopping around for insurance cover.

Brian Capon, head of media relations for the British Bankers' Association, said it was unlikely the FSA would contact it officially about the matter as it would probably contact the banks themselves.

But he said the organisation would co-operate if there were an official approach.

"You can get stand alone PPIs. The important thing is to be aware of what it covers, not just the price, and what banks will need to do is pass information on and explain what you're buying, clearly identifying the costs and benefits," he said.

"If you do want to take out PPI then shop around and make sure you're comparing the same cover."

Key advice for consumers

nThe key is to have a plan - think about the amount you want to borrow and how much you can afford to pay back.

nDo not make a decision to apply before getting an indication of the following: the amount to be borrowed, the repayment period, APR (the annual rate of the charge), the total cost for credit and the monthly cost.

nAsk if the quote includes the insurance. If it does and you do not want it tell them.

nAsk for the policy documents. This will allow you to compare it to other quotes at your leisure.

nIf you are unsure in any way walk away and think about it. Contact trading standards on 08454 04 05 06 if you require further advice.