Consumers to wait a year for new payment protection rules

The Financial Services Authority, the UK's chief City regulator, will take up to a year to crack down on mis-selling of payment protection insurance (PPI), prompting consumer groups to warn customers off the sector.

Which? said the fact the FSA would not introduce new rules on PPI until the final quarter of 2007 would sell consumers short.

"It is very disappointing that the FSA has not named and shamed the companies who exhibit bad practice," said researcher Pula Houghton. "Consumers will be left with no idea which firms are not complying with regulation."

The row follows the decision on Thursday by the Office of Fair Trading to refer the PPI industry to the Competition Commission, amid concerns that lenders are making excessive profits on the insurance and paying out on too few claims.

The FSA said its own investigations suggested PPI was rarely explained properly to policyholders and that many lenders failed to check whether it would be suitable for customers.

PPI is routinely sold alongside mortgages, loans and credit cards, but customers are often not told that insurance is not compulsory, and almost never warned that cheaper policies may be available from standalone providers.

The FSA said customers should think twice before buying the cover. "PPI is almost always optional - you should not be refused credit if you decide not to buy it," said FSA director Clive Briault. "Remember that you don't have to take out PPI from the same place you get your loan from - shop around."