Is this a protection racket?

High-street banks offering customers personal loans are consistently quoting repayment figures that include the controversial payment protection insurance (PPI), which adds thousands of pounds to the cost.

Independent payment protection insurance broker Paymentcare carried out a mystery shopping exercise at the end of last month on five big name banks: Northern Rock, Lloyds TSB, Halifax, Egg and NatWest.

In each case, it says that its team of shoppers were quoted a figure inclusive of PPI on the requested £7,500 loan over five years. In the case of NatWest, this would mean an additional £2,562 over the life of the loan.

The Office of Fair Trading announced last week that it is launching an inquiry into the sale of PPI following a 'super complaint' about the product lodged by Citizens Advice. A recent Financial Services Authority investigation found that people were frequently being sold cover they could not claim on or which was limited, and that firms were failing to give adequate advice about the product.

'The lenders covered in this mystery shop are guilty on two fronts: first, by giving the first quote with PPI, as it is an inflated figure and not one that the consumer would necessarily want; second, they have all omitted to establish the eligibility of the applicant before doing a hard sell on the loan,' said Shane Craig, managing director of Paymentcare.

Paymentcare says borrowers have saved an average £3,353 by switching from their lender's PPI to its lower-cost version of the product.