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• FSA acts for first time to eliminate a product
• Firms asked to withdraw single-premium PPI
The main City regulator yesterday moved for the first time in its history to eliminate a financial product from sale by calling on banks and other lenders to stop selling insurance cover for loans and credit cards.
The Financial Services Authority has written to all firms still selling single-premium payment-protection insurance asking them to withdraw the product "as soon as possible", and by no later than May 29.
The move follows an extensive report last month by the Competition Commission that found the insurance cover had generated excessive profits for lenders and led to unnecessary charges on consumers, many of whom were unable to make a claim.
A ban on the product was agreed by the commission to take effect in October next year. Several banks reacted to the commission's decision by immediately withdrawing it from sale, but other lenders, including shops offering store cards and car dealerships offering car loans, failed to sign up.
The FSA, which is unable to impose a ban, said it hoped its request would be considered by finance companies offering the cover.
Thousands of consumers have complained about the mis-selling of payment-protection insurance in the last two years after a complaint in 2005 by Citizens Advice that the cover was "a rip-off".
The insurance covers loans and credit cards if the buyer is made redundant or suffers a long-term illness. Campaigners vented most of their fury against the single-premium version, which front-loaded costs, allowing lenders to charge interest on the combination of the loan and the cover.
Five years ago the Guardian revealed how banks made profits of up to 80% on PPI premiums. The investigation also uncovered documents showing Barclays earned 10% of its global profits in 2001 from the sale of PPI. Analysts have calculated that between 2001 and 2006 Alliance & Leicester, Lloyds TSB and Barclays regularly made more than 10% of their profits from the sale of the product.
In 2005 the FSA began investigating the industry and in 2006 levied fines for mis-selling PPI with loans. Several lenders have been penalised, including Alliance & Leicester, which received a record £7m fine in September. So far, the big high street banks have escaped censure.
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