Consumers revolt against debt insurance mis-selling

By Jennifer Hill

LONDON (Reuters) - Thousands of borrowers are poised to challenge lenders over debt insurance, in what has been hailed a new consumer revolution against mis-selling and "unfair" charges.

Consumer advice Web site MoneySavingExpert.com said 70,000 people had downloaded template letters in the past two months to try to reclaim costs associated with payment protection insurance (PPI).

The policies are designed to cover the repayment of loan, credit card or mortgage debt if people fall ill or lose their jobs, but has long been criticised as aggressively sold, expensive and failing to provide the anticipated level of cover.

There are more than 20 million PPI policies in place, according the Office of Fair Trading (OFT).

The industry generates 5 billion pounds-worth of premiums per year, but only 20 percent of that is paid out in claims, compared to 82 percent of car insurance revenues and 54 percent of home insurance premiums.

The OFT said last year that Britons could save 1 billion pounds per year with greater competition in the PPI market and, earlier this year, referred the sector to the Competition Commission.

Martin Lewis, founder of MoneySavingExpert.com, said PPI revenues were three times those from bank charges, which have come under fire of late.

Consumers have so far reclaimed an estimated billion pounds in "unfair" bank charges, levied when a cheque bounces or balances slip into the red beyond an agreed overdraft for example.