MPPI: Shadow Chancellor urges FSA to investigate 'malfunctioning' market
Mortgage payment protection insurance (MPPI) products have come under attack in a pre-election action plan by the Liberal Democrats.
The Action Plan on Personal Debt has hit out at mortgage protection insurance as an expensive and often ineffective option for homeowners looking to protect themselves.
In the document, Vincent Cable, Shadow Chancellor for the Liberal Democrats, urged the Financial Services Authority (FSA) and competition authorities to "investigate the malfunctioning market for mortgage payment protection insurance and [ensure] greater transparency in the market."
The plan explores all aspects of personal debt but pays particular attention to the importance of a healthy housing market to the overall health of the economy and the sharp increase in both secured and unsecured debt since 2001. It also details worrying rises in both mortgage arrears and repossessions.
Cable suggests MPPI as a safety net and notes that "at present only 22.5% of mortgages are protected, down from 23.7% in 2003, though 60% have some form of protection." Yet although MPPI is identified as a possible means of mitigating the risk of repossession due to excessive personal debt, the report goes on to state that "many policies are very expensive and many have exclusions in the small print, which limit their value."
The Liberal Democrats' plan comes just weeks after the Government's Consumer Credit Bill was first discussed by a House of Commons Standing Committee. The proposed legislation intends to clamp down on rogue lenders and give greater powers to consumers to challenge the conduct of lenders and obtain redress.
Advisers have questioned whether it is necessary for the FSA to step in and have urged other regulatory bodies to take the initiative.
"The concerns the Liberal Democrats have with small print and exclusions on mortgage payment protection policies could be addressed by the Association of British Insurers and the Council of Mortgage Lenders developing a Statement of Best Practice for mortgage payment protection insurance, rather than the baseline we currently have in place," said Richard Verdin, sales and marketing director at Direct Life and Pension Services.
"The newly implemented statutory regulation will address most of the issues around how these policies are sold, but without a best practice statement I do not think concerns about the 'malfunctioning' MPPI market can be properly addressed," he added.
