We Introduce You

There are reports today that The AA has appointed Price Waterhouse Coopers to line itself up for a £3 billion stock market flotation. Private equity investment groups CVC Capital Partners and Permira currently own the AA.

The reason why I mention this story on the Blog is because The AA also deals in secured loans, insurance and credit cards.

Well to tell the truth The AA don’t actually deal in secured loans, they are just like the masses of other businesses, for example, all the top supermarkets, who merely act as an introducer for loans to finance companies.

There is a growing trend in doing this, whereby the large businesses exploit their brand name and position to sell things on behalf of others. I suppose you can’t blame them, but 9 times out of 10, the customer must genuinely believe they are getting a loan from companies like The AA.

In the AA’s case it acts as an introducer to Bright Finance . Apparently a guy called Paul Hancock in 2001 using only the finance available on his £5,000 limit credit card started Bright Finance. Four months later equal partner Mark Cooke joined him and it now has £12 million turnover and 400 staff.

The AA was bought from Centrica in a deal said to be worth around 2.7billion Euros, so it looks like the Equity companies are going to make another whopping profit at the quoted flotation valuation.

With losses for the finance industry expected to reach £6 billion this year and the astronomical growth in people taking out Individual Voluntary Arrangements (IVAs) the industry is fighting back by using a service developed by TDX Group.

TDX Group have introduced a sort of centralised Hub whereby the finance industry can pass on applications for an IVA and the centralised source, called The Insolvency Exchange (TIX), analyses information to decide whether to accept or reject an application. If the IVA is accepted the TIX service will help manage it through the five years of the agreement.

Two large banks, HSBC and HBOS, have already signed up to the service. Industry sources estimate that around 10% of IVAs now approved by lenders ought to have been rejected and with the two large banks signed up it is estimated that 2,400 proposals could be thrown out each year.

The banks have been criticising ‘rogue’ insolvency practitioners for pushing people into IVAs, so that they can claim fees of up to £7,000.

The way the exchange basically works is by adhering to the rule that 75% of creditors by value of debts have to agree to an IVA, so the more financial institutes sign up to TIX, the more applications will be thrown out.

Perhaps due to a slump in sales or maybe because of customers showing concern, the Building Societies Association has issued a letter to the Office of Fair Trading (OFT) about MPPI (Mortgage Protection Payment Insurance).

This comes in light of the OFT referring PPI, including MPPI, to the Competition Commission after finding very worrying failings in the way it is sold.

The letter states “We believe that the MPPI sector is fundamentally different to the general PPI sector. This is both in terms of how the product is sold and also customers experience of the product if they have to make a claim. You identified many of these differences in your investigation into the PPI sector and we trust that the CC will, if it goes ahead with an investigation, also identify these differences.

“We note that you found that MPPI products are of better quality than general PPI products. We also note that you found the market to be more competitive than the general PPI market and that better sales techniques are used. As the market matures, we expect both existing providers and new entrants to continue making improvements to both the products themselves and also the ways that they are sold. These innovations will further benefit consumers.

“One weakness of the paper is that it fails to highlight the wide choice of different MPPI products. Although you acknowledge that MPPI can be purchased on a modular basis, you fail to recognise the differences between various MPPI products – while some policies, for example, provide just a very basic level of cover, others provide a whole range of ancillary benefits to claimants such as assistance with finding new employment. This increases not just the range of products available, but also the price of products available to consumers.”

I think in some ways it goes to show that some things prove profitable for companies and then the less scrupulous come along and exploit the market more and more.

The PPI and MPPI story is going to run and run……