A think tank is recommending mandatory protection insurance for personal and small business loans, a proposal CUNA Mutual is taking up.
ResPublica said the UK economy is losing almost £40 billion a year due to a reduction in the availability of loans to consumers and SMEs, yet a new loan safeguard could build confidence in lenders to lend and could potentially unlock billions in consumer spend.
The think tank urged Government to influence state owned banks and lead the sector by adopting this safeguard.
Following the ban on some PPI products, 83% of UK citizens are now without protection against redundancy as a result of unemployment or sickness according to CUNA Mutual.
The ResPublica report ‘Risk Waiver: closing the protection gap and easing the flow of credit' identifies that, over the last five years, there was a 58% decrease in UK credit supply to consumers and small businesses.
The paper projects the loss to the GDP from the contraction in lending between 2007 and 2012 to be worth c. £193 billion.
A ‘Debt waiver' safeguard product is set to be launched by global credit protection specialist CUNA Mutual in July.
The product will mean the lender offers a ‘debt waiver' facility to their customers which would be written/integrated into the loan agreement, guaranteeing that should certain events arise they would waive that loan instalment on behalf of the customer.
Phillip Blond, the paper's author said: "Lack of protection has made lenders wary of lending to those who desperately need credit.
"The two bailed-out banks should be influenced by Government to adopt ‘debt waiver' - where they lead others will follow."
Insurer CUNA Mutual has been offering waiver products in the US for 75 years and in July will announce its first waiver partnership with a UK financial institution.
Paul Walsh, CEO of CUNA Mutual : "Although not everybody offering PPI was mis-selling it, everybody is paying the price of the widespread deception that went on.
"Many lenders want to offer a real solution to the ‘protection gap' that would benefit and protect both them and their customers. We know, from experience, that the CM Waiver will provide that solution."
