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Payment Protection Insurance

In 2005 The Citizens Advice Bureau launched a ‘super complaint’ regarding Payment Protection Insurance. The organisation branded the industry ‘the country’s biggest protection racket’ and demanded immediate change. Their report claimed the insurance was expensive, had a disproportionately high number of exemptions and was frequently mis-sold. Since this first complaint the issue of PPI mis-selling has never been too far from the headlines. So far, more than 1.5 million consumers have made complaints and billions of pounds looks set to be paid out in compensation.

Payment Protection Insurance has been widely sold for more than thirty years and is available through most major banks and building societies as well as smaller finance companies, brokers and even some retailers. The cover is designed to protect a borrower in the event they are unable to work due to accident, sickness or redundancy by stepping in to take over repayments. The insurance is widely added to many financial products including loans, credit cards, store cards, mortgages and hire purchase agreements.

Loan Payment Protection Insurance

Loan payment protection insurance is sold by most banks and building societies including: Abbey, Lloyds and Yorkshire Bank and other lenders such as FirstPlus. The insurance is sometimes known by other names including loan cover and accident, sickness and unemployment cover. The trouble with loan PPI is it can be very expensive and add anywhere from 13%-56% to the base value of a loan.

For example, a survey found insurance charged on a £10,000 loan paid back over five years from Abbey National could cost up to £2,765. The same survey found, a similar policy sold by Natwest Bank, on a loan of the same size and length, could cost as much as £3,270. The Natwest PPI policy is clearly the more expensive, but the cost of both policies seem extremely high when it is also considered that as little as 15% of all people who try and use their loan policy are able to do so. This means that, as a financial safety net, loan PPI frequently offers very poor value for money.

Credit Card Payment Protection Insurance

While only 15% of people who try and use their loan PPI policy are successful the rate for Credit Card PPI is even lower. Research revealed that of the total number of claims for financial help submitted against card PPI policies only 11% are successful. To put this in contest for every £1 spent on Credit Card PPI the lender makes £0.89 in profit! This figure seems all the more shocking when it is compared to car insurance where an average of 76% of claims are paid-out.

Credit card PPI is sold by most major credit card providers including MBNA, Barclaycard and even Tesco. Although it provides a similar cover to loan PPI the cost is calculated in a slightly different way. Card PPI is calculated on a monthly basis and typically costs between £0.75-£1.50 per £100 outstanding on the balance. To give an example, if you owe £10,000 on your credit card you may be paying between £75-£150 per month for PPI – that’s between £900 and £1800 per year!

Store Card Payment Protection Insurance

Most major retailers including Topshop, Dorothy Perkins and JJB Sports PLC offer their customers some kind of store card. The idea is the customer uses the card instead of their credit or debit card and is rewarded with savings and discounts. Although the idea started out predominately in clothing retail the cards are now widely available, in fact, even Swedish furniture giant Ikea is offering its own version with The Ikea Homecard.

PPI on Store Cards is, essentially, calculated in the same way as Credit Card PPI and is usually added on a monthly basis dependant on the outstanding balance.

Mortgage Payment Protection Insurance

Mortgage Payment Protection Insurance, often known simply as MPPI, is very similar to loan PPI in the way it is calculated and applied. As a general rule, MPPI can offer a degree more protection than loan PPI and often has some form of life insurance incorporated. The cover is sold by smaller companies such as Kensington Mortgages as well as well known high street lenders.

An investigation by The Competition Commission found that 28% of customers who try and use their MPPI policy are able to do so. Although this is clearly significantly higher than Credit Card PPI it must be remembered that MPPI is, as a general rule, a much more expensive form of cover. This means that, despite slightly higher rates of payout, mortgage companies are still making huge profits from MPPI. Unfortunately, it also means that customers who have their claims for financial help rejected are often at a much greater financial disadvantage.

Payment protection Insurance on Hire Purchase Agreements

Whether your finance agreement was for a vehicle from Blackhorse or Welcome Finance or for home improvements from Zenith Windows it is still, in essence, a loan and PPI is attached to it in the same way as loan PPI. The thing that makes PPI on hire purchase agreements stand out; however, is that it is statistically much more likely this kind of cover will be mis-sold. This is because the insurance was often sold by garages and shops by staff who had received little or no training.

The PPI problem

As the above summaries demonstrate, the Payment Protection Insurance industry is huge and wide reaching. It was an epic task, therefore, when, in 2006, in response to The Citizens Advice Bureau’s complaint, The Financial Services Authority and The Office of Fair Trading began to investigate. The reports the two bodies subsequently released were damning and they found failings throughout the industry. The most common issues highlighted included a lack of staff training and a failure to put in processes to protect customers from the risk of being sold an unsuitable policy.

With pressure to sell, high commission rates and a lack of understanding of the cover, many lenders were recommending PPI to all customers without consideration of their suitability or needs. This meant that thousands of people were, in good faith, paying for insurance policies that could offer them little or no benefits. Many only discovered they had been mis-sold policies after trying to claim financial help and having their claim rejected.

Following the investigations fines were handed out to the worst offenders. In 2008 the largest single fine was given to Alliance and Leicester for failures relating to telephone sales of PPI – the fine totalled £7 million. Other well known lenders, such as Capital One and Egg, also faced fines while the industry as a whole was warned it must change.

The attitudes of lenders regarding the PPI scandal varied considerable. Some lenders, such as Halifax, announced they would no longer sell the cover while others, such as Nationwide, continued to use mystery shopping exercise and other processes to minimise the risk of future mis-sales. Many of the lenders; however, remained defiant refusing to accept any wrongdoing.

A rise in complaints

Since The Citizens Advice Bureau’s complaint, the number of customers making complaints regarding mis-sold PPI has continued to grow. In 2010 The Financial Ombudsman Service received a record number of complaints with 5,000 new cases being received per week in the last three months of the year.

The role of The Financial Ombudsman Service has been critical within the PPI scandal because they step in to resolve disputes between financial institutions and customers when they fail to meet an agreement alone. In most cases of PPI, around 90%, The Ombudsman finds in favour of the customer. The figures do vary according to the lender, though, and the type of PPI. In the first half of 2010 The Ombudsman found in favour of the client in a massive 99% of complaints regarding Ocean Finance & Mortgages.

The other government organisation that can offer significant assistance to the customer regarding PPI mis-sale is The Financial Services Compensation Scheme. This organisation assists customers who believe they have been mis-sold a Payment Protection Insurance policy by a company that is no longer trading, for example Picture loans. The organisation will examine the customer’s complaint and then decide whether the policy was, in fact, mis-sold. It then has the authority to award appropriate compensation to the customer for their loss.

The current situation

In order to prevent a repeat of the mis-selling scandal, in 2010 The Financial Services Authority announced a new set of guidelines aimed to protect customers. Many lenders were unhappy with the regulations and, as a result, The British Banking Association requested a High Court Review. With the decision pending many banks, including Ulster Bank, placed all PPI claims on hold; while Santander became one of the few to publically declare it would continue to investigate all complaints thoroughly.

In April 2011 The High Court concluded its review finding in favour of The Financial Services Authority and the consumer. In response, several key lenders announced they were allocating funds to finally and thoroughly deal with the PPI situation. Amongst these lenders were HSBC, who allocated 268 million, and The Royal Bank of Scotland (RBS), who allocated £850 million.

Most recently, in May 2011, Barclays announced that, following the Court’s decision, it would be settling all complaints submitted prior to the ruling. This is excellent news for customers and shows a marked improvement in the attitudes of lenders to the PPI situation.

Has your policy been mis-sold?

I, Were you given incorrect or incomplete information when you purchased your policy?

Because of a lack of training and the incentive of high rates of commission many salespeople gave customers incorrect or mis-leading information at the point of sale. This may include being told you had to have the cover or that it would guarantee or improve your chances of being given the loan or credit card. Other customers did not have the full costs, terms or conditions explained to them. Also included in this category are customers who were subject to so-called ‘high pressure sales techniques’ and customers who did not receive the appropriate policy documentation.

People were also mis-sold a single-premium payment protection insurance policy. These policies are particularly controversial and have recently been banned. Single-premium policies usually last for a set period of time - usually around five years. The policies were sold to many people who had longer loans many of whom were not told they would not be covered for the whole length of the loan.

In order to make a decision whether you wanted PPI and whether the cover was right for you, your lender should have given you full information regarding the policy – if this did not happen you may be entitled to make a claim.

II, Were you sold the cover even though it was not suitable for you?

As previously explained, Payment Protection Insurance has many exemptions meaning it is not suitable for everyone. Common examples of people who often cannot be covered by PPI include customers over the age of 65. The terms of many policies also do not cover pre-existing medical conditions meaning if someone has a serious or ongoing health condition they probably cannot be insured.

Many people are also unsuitable for PPI because of their work status. This including people who are: retired, unemployed, in full time education or employed part-time. This is because PPI is designed to cover loss of employment – if you were not in employment when you were sold the policy it is clearly of little or no use to you.

Your lender should have asked you a series of questions to assess your suitability for PPI including whether you had cover in place elsewhere or were entitled to full sick pay from your employer. This is particularly relevant if you were a serving member of the armed forces or worked for the civil service.

If you believe you were a sold a policy that was unsuitable for your needs you have the right to make a claim.

Making a claim

If you believe you have been mis-sold a PPI policy you didn’t want or need or that was not suitable for you, you can start your claim today. Simply call our team on 0207 471 2000. We have already helped more than 60,000 customers and claimed in excess of £50 million. Our average customer claim is £2,500 and we settle many cases in just eight weeks.

Remember, you can also make a claim for unfair credit card charges. Whether your card is with Lloyds TSB, Goldfish or another bank, building society or credit card company you could be entitled to hundreds or even thousands of pounds in compensation. So, if you have ever been charged a late payment or over the limit fee that you believe was unfair call our team today on 0207 471 2000.

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