Watchdog seeks payment protection restrictions

LONDON (Reuters) - Lenders would be banned from selling payment protection insurance (PPI) to borrowers within 14 days of them taking out a loan, under proposals set out Thursday by the country's competition regulator.

The Competition Commission also said lenders should provide borrowers with a separate quote for the cost of PPI, and proposed an outright ban on single premium PPI policies.

The watchdog said the measures are aimed at overcoming a lack of competition in the market for PPI, which maintains loan repayments in the event of a loss of income by the borrower.

PPI sales generated premium income of 4.4 billion pounds in 2006, according to Competition Commission data.

The Association of British Insurers said Thursday the proposed ban could leave borrowers unprotected just as unemployment is rising sharply.

"By effectively denying consumers PPI in the very economic climate that they need it most, the Competition Commission has got this completely wrong," said ABI Director of General Insurance and Health Nick Starling.

"If the Commission continues down this path, it will kill the PPI market altogether, leaving millions of consumers with no protection at all."

The Competition Commission began an investigation into PPI in February 2007, and in June this year reported that lenders face "little or no competition" when selling PPI to their customers.

The watchdog said the chief obstacle to greater competition in the sector was lenders' "point of sale" advantage, with most PPI sales taking place at the same time as a consumer takes out a loan.