Consumers who pay for car or home insurance in monthly instalments are being charged interest as high as 75%, according to the Financial Conduct Authority in a highly critical report on the £18bn-a-year industry.
Nearly half of all households in Britain pay for their insurance in monthly instalments, but many are not told the high cost when buying online.
The FCA tested 43 insurance and broker websites, including the major comparison sites, and found that 19 did not tell the buyer in full about the additional cost until they had to enter their payment details. In four cases, the interest charges were not displayed at all.
Monthly payment plans can be hugely profitable for insurers. The FCA found that of the 34 companies that did display the APR, 10 charged 26%-30%, and nine 31%-40%. Three companies charged 51%-75% interest, while one took more than 75%.
In 2013 it was estimated that total premiums for car insurance were £10.8bn, with 40.6% of customers paying monthly. The home insurance market, meanwhile, is worth £7bn a year in premiums, with 52.5% of households paying monthly.
Some of the insurers now face disciplinary action – including the possibility of large fines – as they have appear to be in breach of price disclosure rules introduced in 2008.
Linda Woodall, acting director of supervision at the FCA, said: “Consumers should expect clear information about the payment options available to them. Regardless of whether people choose to pay upfront or in instalments, it’s important tthey can see exactly what they are signing up for and how much it costs so they can decide whether they are getting a fair deal.”
The FCA also found that details of credit agreements were not disclosed adequately. On broker websites, firms frequently failed to disclose the terms of their deal with a credit provider, or that they may charge buyers a separate fee for arranging credit.
