There have been a lot of stories in the media regarding PPI, but what exactly is it and why has it proved to be so controversial?
PPI is an abbreviation of Payment Protection Insurance a common type of insurance sold alongside financial products including loans, mortgages, hire purchase agreements, credit and store cards. The purpose of the insurance is to take over repayments when a borrower is unable to work due to sickness, injury or redundancy. PPI News stories began to emerge in 2006, though, after The Citizens Advice Bureau registered a 'super complaint' highlighting major failings within the PPI industry.
As a result of the Citizens Advise Bureau's complaint The Office of Fair Trading and The Financial Services Authority investigated. Their reports found major failings by many well known banks, buildings societies and brokers and, as a result, many of these businesses were handed heavy fines.
The PPI News spread quickly and people, who believed they had been treated unfairly, began to come forward to register their complaints. Many felt they had been duped into buying policies they didn't want or need while others complained of high pressure sales techniques. Some had been told the insurance was compulsory while others had purchased the policies in good faith only to find, months or even years later, that it was totally unsuitable for their needs.
PPI News continued to make headlines as complaints from disgruntled customers mounted. Many customers identified the same negative experiences and a pattern of mis-selling emerged. Perhaps most shocking of all was that some complaints related to policies sold more than 20 years ago showing a clear industry pattern of mis-selling which may well have continued had PPI News not been brought to the public's attention.
Below is a list of some of the most frequent complaints made regarding the sale of PPI.
Customers were told PPI cover was compulsory - many customers were incorrectly led to believe this was the case. PPI cover was often an expensive added extra and was never compulsory. When it was revealed how many people had been duped in this way it became a PPI News scandal across the country.
PPI was recommended to customers who were unemployed, retired or in full time education - PPI cover is designed to take over repayments when someone is unable to work due to accident, injury or illness. If the borrower was not in employment when they took out the loan they clearly had no need for this cover! This particular type of complaint became headline PPI News because it happened on such a wide scale. Many policies were seemingly sold indiscriminately with no thought to the suitability of the borrower for this type of insurance.
Customers were sold policies without the terms and conditions being clearly explained - obviously, if someone was not made fully aware of the terms, conditions and exemptions of a policy they were in no position to judge whether it was suitable for their needs.
Customers were sold policies without any clear explanation of the costs involved - The Citizens Advice Bureau created PPI News headlines when it identified a case where someone had been sold a ppi policy that cost 50% of the total loan amount. For example if a loan were for £10,000 this would be add an additional £5,000 just for insurance plus interest!
Customers with pre-existing medical conditions were sold PPI policies - as many ppi policies do not cover pre-existing medical conditions in most cases they should not have been sold. PPI News has identified cases where people with chronic illness were sold policies that would not cover them if their health deteriorated and they needed to take time away from work.
Customers were told they had an improved chance of being given a loan/ credit card if they took out PPI -unfortunately, many borrowers were led to believe they needed to take out payment protection insurance in order to be given credit. This revelation caused a PPI News sensation with many people shocked by the conduct of lenders and the clear way in which some took advantage of people in a vulnerable financial position.
In addition to the above common examples of mis-selling, many consumers have accused lenders of using high-pressure selling techniques to force sales. The insurance provided a significant additional revenue stream for lenders and salespeople were often offered significant rates of commission for selling the cover. PPI News of the sales techniques used outraged and disappointed many customers who felt they had been let down and misled by their lender.
Since 2006 the number of claims being made for mis-sold PPI has risen dramatically with the Financial Ombudsman Service investigating a record number of claims last year. In 2010 PPI News hit the headlines again as The British Banking Association requested a High Court Review of new Financial Service Authority guidelines designed to protect the consumer from mis-selling. The verdict was returned in March with the courts finding in favour of The Financial Service Authority and the consumer. The new guidelines aim to protect people from mis-selling in the future, but, it seems, at least for a few more months, PPI News will never be too far from the front page.