The Competition Commission believes that customers would benefit from being given time to find more appropriate and better-value cover. PPI is supposed to enable borrowers to pay off loans such as credit card bills or mortgages if they fall ill or lose their job.
The commission's decision is still provisional and open to final consultation - with a final verdict to be published in July. Plans to restrict PPI sales were first released in January last year but after an objection by Barclays, the Competition Appeal Tribunal asked the commission to review the plans. It focused on whether they would inconvenience customers who could not buy PPI at the same time as taking out a loan.
PPI providers are overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale
"Many customers would place very significant value on being given the time and space to choose the right PPI product - or indeed to decide that PPI is not right for them", said commission deputy chairman, Peter Davis.
"Overall we concluded that PPI providers are overstating the loss of convenience that would result from the introduction of a prohibition on selling PPI during the credit sale."
PPI has been called a ‘protection racket' by consumer groups, as the policies can be very expensive and have been mis-sold to people who could never make a valid claim under the terms of their policies.
As part of its initial inquiries that led to the proposed ban, the Competition Commission found that in 2006, lenders made excess profits of £1.4bn when selling the insurance. It found that the vast majority of the UK's 12 million PPI policies were sold at the same time as a consumer took out a loan, credit card or other type of credit.
Many consumers were unaware that they could buy PPI from other providers, rarely shopped around to compare prices and terms and conditions of PPI policies, and rarely switched PPI providers.