David Prosser: Will no one rid us of these villains?

Have you ever watched the hour-hand of a clock and tried to spot it moving? After a while, you know that it must have done because it's no longer in quite the same place, but the movement was so slow that you never saw it happen.

Trying to follow the snail-like progress that watchdogs are making in cracking down on the great payment protection insurance scam is a similar exercise, but the other way round. Every few months, you do see a movement - such as this week's decision by the Office of Fair Trading to refer the PPI sector to the Competition Commission - but the whole thing nevertheless remains stuck in the same place.

Just to recap; it was September 2005 when Citizens Advice first made an official complaint to the OFT about the PPI industry. (Consumer groups had been warning of problems with PPI for years prior to this, but the watchdogs never saw fit to investigate of their own accord.)

There are two basic problems with PPI, which banks and credit-card providers have used for years to rack up huge profits. First, when borrowers buy the cover alongside their loan or credit card - lenders often sell it almost automatically - they pay hugely over the odds for it. Such policies are 10 or more times more expensive than identical cover that is available from independent insurers.

That's bad enough, but the second flaw is even more fundamental - the insurance is just not very useful. The policies are supposed to cover your debt repayments if you can't work due to ill health or unemployment, but they are riddled with exclusions. For most people, other types of cover would be more suitable.

Lifesearch, one of the few independent financial advisers that specialise in helping people to buy protection policies, thinks that this second issue may be missed amid all the debate about the rip-off nature of PPI. As the firm puts it: "Cheap rubbish would still be rubbish."

Still, at least the OFT had to investigate after Citizens Advice made its complaint. The regulator took more than a year to work out what everybody else already knew, but last October it finally announced it had found major flaws in the way consumers were sold PPI.

Unfortunately, the watchdog then had to give everybody a chance to respond to its findings - hence the delay of another three-and-a-half months before this week's referral.

So are we now in a position to stop consumers being ripped off? Of course not. The Competition Commission must now conduct its own inquiry - and that could stretch out for a further two years.

Other regulators are taking their time, too. The Financial Services Authority, which is supposed to police sales of PPI, somewhat belatedly announced last year that it was looking closely at the industry. So far, however, it has fined just one large provider.

It is difficult not to despair at this sorry state of affairs. In one corner, you have the hugely powerful banks and credit-card companies systematically selling a product that is overpriced and often unsuitable. In the other sits a team of regulators for whom wading through treacle would feel like a breathtaking sprint.

* Given the PPI debacle, I was particularly amused this week to see that the FSA has requested a 10 per cent increase in its budget for next year. It now wants more than £300m a year to pay for all that good work it does protecting us from financial villains.

A closer look at its budget proposal reveals that the FSA intends to spend much of the extra cash on consumer education, one of the priority tasks in its brief from the Treasury.

It's a worthy cause, I suppose. If we can't trust regulators to put a stop to scandals such as PPI, they'll at least be putting some money towards teaching us all how to protect ourselves. It's an odd day when a watchdog tries to pass on its guard duties to its masters, but there you are.

d.prosser@independent.co.uk