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The majority of Britain's high street banks today pledged to halt sales of single premium payment protection insurance (PPI) by the end of this month.
The move to end sales has come from Alliance & Leicester, Barclays, the Co-operative Bank, Lloyds Banking Group (including Lloyds TSB, Halifax and Bank of Scotland), and RBS/Natwest. It follows signals by the Competition Commission that it was considering a ban on the product.
The controversial cover, which increases payments on personal loans by about 30%, has been highly profitable for banks selling the plans. The insurance is sold to borrowers with the promise it will cobver loan repayments when the customer is out of work due to unemployment, sickness or accident.
But few policyholders have ever successfully claimed; even fewer were able to recoup more than the cost of the upfront premium and the extra interest paid after it has been added to their borrowing. Many policies were sold to borrowers who were ruled out from ever claiming from the start by the small print.
Guardian Money revealed five years ago how banks kept up to 80% of the premiums – a profit margin several times higher than on motor or household cover.
City watchdog the Financial Services Authority (FSA) welcomed the move, saying it "expects other firms still selling single premium PPI to take note of these developments".
It added that while it "recognises the importance of appropriate protection insurance in the current economic climate", it remained "concerned over the standard of sales of single premium PPI. Customers being sold this type of product should be told how the product works, what it covers and how much it costs – especially as the cost of the PPI is added to the loan and interest charged on this amount".
The decision by lenders to end sales follows a long campaign by the Guardian, Which? and the FSA. The latter has previously taken action against 20 firms over poor PPI sales practices. Last October it hit Alliance & Leicester with a £7m fine – a record in the retail sector – for "serious failings in its telephone PPI sales".
Louise Hanson, head of campaigns at Which?, said: "These firms have recognised that the party is over for single premium PPI, and the rest should follow suit. It is a fundamentally bad product and should be withdrawn from the market altogether.
"People need to protect their finances more than ever so providers should be developing products that meet consumers' needs and offer value for money.
"PPI has been widely mis-sold in the past so anyone with a personal loan should check if they have a single premium policy as they could claim their money back."
Almost 4.3m single-premium PPI policies are thought to be held by borrowers, while many more consumers have regular-premium policies which they pay for on a monthly basis alongside their loan or credit card repayments.
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